with a public pension example, the Teacher Retirement System of
Texas, commonly known as Texas Teachers (TRS 2014a, 2014b).
The University of Virginia has perhaps the most fulsome discussion
in our survey.
18 It echoes many others in emphasizing partnerships
with successful managers as a cornerstone of its success,
19 yet it
offers a detailed discussion of the rationale for its asset categories
and provides more insight than most on other aspects of its investment process. For example, the report notes a common underlying
driver for both public and private equity returns: “Equity investments provide an opportunity to participate in the growth of public
and private companies. In a growing global economy with low
inflation, these investments historically have provided the highest
long-term return opportunities” (UVIMCO 2014, p. 9).
The UVA performance discussion in UVIMCO (2014) further
underlines common features of markets and managers that drive
• “Bullish public markets, favorable conditions for initial public
offerings (IPOs), and strong merger and acquisition activity pro-
vided fertile ground for equity returns in both the public and
private arenas” (p. 15).
• “[L]ong-term outperformance in both public and private equity
reveals the exemplary security selection and value-added capabilities of our external managers” (p. 16).
UVA specifically addresses the role of long/short managers, noting
an expectation of correlated returns with a lower risk:
• “We do not expect our long/short equity investments to outper-
form our other equity investments over time. Rather, the objec-
tive for our long/short equity program is to generate returns that
are less risky than our long-only public equity and private equity
programs, while affording the opportunity to make money from
shorting stocks” (UVIMCO 2014, p. 16).
Another novel aspect is the inclusion of marketable alternatives
and credit in the same policy allocation as fixed income, to “
provide protection in deflationary or weak economic environments”
(UVIMCO 2014, p. 9).
UVIMCO’s report also underlines that the endowment focuses its
portfolio within subsets of the investable universe where its team
has developed domain expertise as well as an established network
of manager relationships. This approach is not viable for the largest
investors such as massive pension plans, but other investors should
consider these policies as an important lesson—perhaps a significant under-recognized feature of the endowment model.
Conclusions: Where Are We Headed?
Several trends stand out in our survey of large university endowments. First, there is no universal approach for slicing the investment universe. As we have seen, diversity rules.
What has led to this divergence from the original set of major
assets—stocks, bonds, cash, and real estate? In our view, several
causes are obvious. First, university endowments have been leaders
in the shift to alternative investment categories, especially private
Table 6: Aggregations/Higher-Level Categories Containing Hedge Fund Strategies
Category Name Hedge Fund Strategy Included Other Investments Included
Global equities Directional long/short strategies Long equities
Diversifying assets Absolute return, lower volatility/ less correlated real asset strategies None
Excess return Higher volatility/less correlated real asset strategies Private equity
Defensive Lower volatility/less correlated strategies Fixed income
Capital appreciation Opportunistic Public equity, private equity, real assets
Capital preservation Absolute return Fixed income
The Ohio State
Global equities Long/short equity Public equity, private equity
Fixed income Relative value/macro, credit funds Fixed income, private credit
Equity Long/short equity Public equity, private equity
Fixed income, cash and market-
able alternatives and credit Marketable alternatives and credit Government bonds, cash, and currency
University of Florida Growth Hedged strategies Public equity, private equity
Diversifying Hedged strategies: Equity-related None
Hedged strategies: Other