They have the longest time horizons of any investors and their decision making bodies meet infrequently. Rather than focus on investment choices that are highly time sensitive for ultimate success, it seems more logical that they should look for value stocks and diversifying strategies that have greater long term opportunities for appreciation. But there is a major barrier between the theory and practice, and that's the temptation to backslide when there is slippage versus the benchmark. Especially when the full implications of the benchmark, including its risk profile as well as its return, are not considered. The only participants patting themselves on the back harder are those trading internet stocks.
Nobody wants to say they lagged the popular standards.
At Commonfund, we've tried to listen carefully to our schools. Three years ago we began offering index funds that now have about a billion dollars in them. Some schools wanted to move part of their portfolios in this direction and we helped. But we also maintained the multi-strategy programs, while working to improve them. The fact that returns have been quite skewed to the biggest U.S. cap stocks over the last three years doesn't invalidate the strategy Participants in this fund should expect relatively less risk than the index, but at the same time more tracking error.