Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Regulation
    • SECURE 2.0
    • Special Reports
    • Washington
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • ESG Investing | Industry Brief
    • Innovation in ESG Investing
    • 2023 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • The Plan Sponsor's Guide to Retirement Income
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2023 Defined Contribution East Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Research Center
    • The P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Canadian Pension Risk Strategies
    • 2023 Retirement Income
Breadcrumb
  1. Home
  2. Print
July 25, 2016 01:00 AM

Fee-conscious smaller institutions see new avenue

Ari I. Weinberg
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Stanford University's Ashby Monk

    The largest institutional investors tend to access separate accounts and commingled trusts for low-cost indexing of stocks and bonds. Smaller organizations, typically those with less than $100 million, are more dependent on mutual funds and exchange-traded funds and, in turn, to external fund-of-funds managers and consultants who have been plied for years by marketers of actively managed investment strategies.

    But smaller foundations and endowments are just as interested in lower-cost solutions for their asset management challenges as their larger brethren.

    “Change comes slowly for foundations and endowments,” said Ashby Monk, executive director of the global projects center at Stanford University. “We don't incent people running such funds to move quickly. We incent them to not move quickly, and we shouldn't be surprised when they don't move quickly.”

    According to the Foundation Center, of 86,726 foundations operating in the U.S. through 2014, 98.7% had assets below $100 million.

    Over the past 10 years, the use of passive equity products has doubled to 22% of all equity mutual fund net assets in the U.S., according to the Investment Company Institute. And, according to Morningstar Inc., 43% of assets in U.S. equity funds, 37% of assets in international equity funds and 28% of assets in taxable bond funds were passively managed as of June 30.

    The drive for passive funds is reinforced by performance data. Over three-, five- and 10-year periods ended Dec. 31, 2015, returns of at least 80% of all surviving U.S. equity mutual funds underperformed their reference index, according to the year-end 2015 SPIVA US Scorecard from S&P Dow Jones Indices, a unit of S&P Global.

    Ten-year performance for global equity and fixed-income funds reveal similar underperformance. Only specific areas of international equities and loan funds, separately, show midterm outperformance of the index by a majority of funds.

    With fixed-income returns depressed by the global interest rate environment, and hedge fund and private equity fees and performance a top concern for even the largest institutional investors, controlling cost and mitigating risk through liquid ETF portfolios can give smaller foundations and endowments more certainty relative to major asset classes and more liquidity at the same time.

    “For smaller foundations and endowments, there's no bandwidth, resources, or expertise to run the "Yale model,'” said Ben Carlson, director of institutional asset management for Ritholtz Wealth Management, New York. “If they are getting the leftovers in their illiquid and alternatives portfolio, why not move to a risk-focused portfolio of ETFs and index funds?”

    In the most recent survey from the Council on Foundations, 10% to 12% of assets at smaller foundations was allocated to hedge funds, with and 7% to 12% to other alternatives.

    Both Mr. Carlson and Todd Green, chief investment officer of Alesco Advisors in Rochester, N.Y., said clients often update their investment policy, spending and grant-making plans, and rebalancing and reinvestment calendar when shifting to a more liquid, ETF-focused strategy.

    Mr. Green said his firm counts more than 90 institutional clients among its client base. Alesco's portfolios are allocated across 15 to 20 distinct asset classes, including equity, fixed-income and real-return investments, as well as factor-based funds, using ETFs with an average fee around 20 basis points.

    Patrick C. Burke, managing principal of actuarial and retirement plan consulting firm Burke Group in Rochester, N.Y., has been involved in hiring Alesco to manage assets for local foundations at which he sits on the investment committee.

    “Driving down fund and advisory costs is really the only place that we as investors have control and can help us get where we need to be,” said Mr. Burke. “Based on prior experience with consultants and active money managers, we just weren't convinced it remained the right way to go.”

    Could fees be even lower should foundations and endowments one day decide to go to robo-advisers? Perhaps, said Margaret Hartigan, CEO and founder of New York-based Marstone Inc., an adviser-focused, white-labeled digital advice firm that in May announced a strategic partnership with Pershing LLC, a unit of BNY Mellon Corp.

    “An automated investment platform could definitely be a great core solution for these clients in the future,” Ms. Hartigan said. Yet she echoes others observations that the foundation and endowment market is “very cautious.”

    “Most foundations and endowments are not designed to be innovative,” said Stanford's Mr. Monk. “They are designed to be efficient, so any time you ask them to be the former it will inevitably contradict with the organizational DNA.” n

    Related Articles
    Charles Schwab to combine robo-advice and financial advisers in new hybrid model
    Robo-advisers aren't taking over ... yet
    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    How low is low? Projections say it's not low enough
    How low is low? Projections say it's not low enough
    Citadel's Ken Griffin gives $125 million to Chicago museum; name will change
    Citadel's Ken Griffin gives $125 million to Chicago museum; name will change
    Quest for Quality Amid Market Turmoil
    Sponsored Content: Quest for Quality Amid Market Turmoil

    Reader Poll

    May 1, 2023
     
    SEE MORE POLLS >
    Sponsored
    White Papers
    Middle market credit: We’re gonna need a bigger boat
    Alternative Credit: Differences and Opportunities in CLOs and Credit Risk Shari…
    Fixed Income is Attractive, but Beware of "Fake" Yield
    Counting on a Crisis: A Catalyst for Investment Innovation?
    A Strategic Allocator's Guide to Productivity and Profits
    Research for Institutional Money Management
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Custom Content
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Regulation
      • SECURE 2.0
      • Special Reports
      • Washington
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • ESG Investing | Industry Brief
      • Innovation in ESG Investing
      • 2023 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • The Plan Sponsor's Guide to Retirement Income
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2023 Defined Contribution East Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Research Center
      • The P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Canadian Pension Risk Strategies
      • 2023 Retirement Income