The Endowment Model Disappoints Again

WSJ reports on the Harvard Endowment's performance

Harvard Endowment Gets a Middling Grade

Harvard University's endowment fund posted a 11% return for the 12 months ended June 30, underperforming the broader markets but reversing a big decline in the year-ago period.The largest college endowment by assets in the U.S. is now valued at $27.4 billion, up from $26 billion a year earlier. That still is a far cry from the fund's precrisis value of $36.9 billion in 2008. The median return for large endowments for the year ended June 30 was 12.3%, according to Wilshire Associates, an investment consulting firm. The Dow Jones Industrial Average had a total return of 18.9% in the same period....

Perhaps this is even more interesting a "naive" balanced allocation would have outperformed as well

According to the report, a portfolio of 60% stocks and 40% bonds would have outperformed Harvard's endowment, with a return of 12.6%

This is due not only to the stock performance but to the fact that bonds, an asset class shunned by the harvard endowment (and yale as well) turned in a performance of 9.3% over the period. Seems this sophisticated endowment model missed the large bond rally of the last ten years. Looked at in terms of risk and return the decision appears even more flawed

10 years through aug 2010

s+ p 500   return -1.81%  annualized standard deviation. 19.19

 aggregate bond index 6.47%  s.d 5.70