Ben Carlson on How the Bogle Model Beat the Yale Model

In this great little article (How the Bogle Model Beats the Yale Model) Ben Carlson does a great take down on the endowment model in terms of how little they move the needle given all their efforts and resources.  That's a good lesson.  Here is the gist of it:

"I have to say that the numbers this year surprised me. I would expect the simple index fund portfolio to beat the average returns (that’s just math), but the fact that the Bogle Model portfolio was in the top quartile and even top decile of endowment returns is insane when you consider the depths these universities will go try to beat the market and how sophisticated they are in the eyes of other professional investors. These funds are invested in venture capital, private equity, infrastructure, private real estate, timber, the best hedge funds money can buy; they have access to the best stock and bond fund managers; they use leverage; they invest in complicated derivatives; they use the biggest and most connected consultants, and the vast majority of these funds still fail to beat a low-cost Vanguard index fund portfolio."

So the numbers are close but the implication is that the endowment model is like riding a bike in first gear: a whole lot of motion and effort for not a lot of forward progress. It looks like this:

Just for fun and ego I'll take Ben one step further. A simple well structured rules-based strategy focused on legit, diversified risk premia can deliver as well.  Here is the table recast with my systematic alt-risk 3-year and 5-year returns:  

It doesn't phase me that that is not a particularly auditable result. At least I know it's cheap (probably quite a bit less that 50bps ex fund fees the last time I checked; results above are net of all fees but before taxes) and I know the vol is lower and that it's more liquid (unfortunately it is not very tax efficient but let's skip over that, shall we?).  In a prior post I compared to hedge funds and this time to endowments and found both times that one does not need access to huge amounts of capital and secret finance society passwords (not to mention fees and lockups and gates and illiquidity and minimums etc...) to get decent relative performance.  Except that each time I say that I feel like I'm inviting the universe to crash down on my strategy.  We'll see next year.