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Why Brown Is Beating the Other Ivies

Markov Processes analyzes how Brown has managed to outperform its rivals in recent years.

By Michael Katz


The team behind Brown University’s endowment portfolio has become the envy of the Ivy League. The school led the league in returns for the second straight year this year, and it has returned more than 12% for four straight years and more than 10% annualized over the past decade. It is also the only Ivy League endowment to outperform a domestic 60-40 equity-bond index portfolio over the past two years.

And whenever someone outperforms the market and their competition, the first thing everyone else wants to know is how they did it. Some have attributed Brown’s strong performance to allocating a large share of its portfolio to private investments, while CIO Jane Dietze has credited Brown’s partnerships with “exceptional investment managers” for the portfolio’s performance, as well as its emphasis on risk management.

In an attempt to find out what sets Brown apart, investment research firm Markov Processes International analyzed the endowment’s investment approach, and looked for clues that might be hidden in its annual reports and audited financial statements.

In its analysis, the firm debunked the idea that the portfolio’s success was mainly driven by its allocation to private investments. Markov noted that Brown’s combined allocation to private equity and venture capital was 31.2% in fiscal year 2020, well below Yale’s 41% target allocation to private investments—and Yale’s returns were less than half of Brown’s for the past two years.

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“Essentially, asset allocations in both endowments were quite similar, with a strong emphasis on equity,” Markov said in its analysis, “yet they produced quite different results.”

And Markov said that while Dietze’s explanation is flattering for the endowment’s investment team and fund managers, “it doesn’t equate to much for performance and risk professionals who are used to hard numbers of performance attribution, factor beta, marginal and component risk, etc.”

After looking into Brown’s asset allocations over the past 10 years, Markov found that “absolute return strategies dominate” the portfolio. It also said that a significant portion of the absolute return segment is allocated to equity long-short hedge funds.

Markov noted that the technology sector has had “a phenomenal run” during the past two years, citing the S&P 500 Information Technology Index, which was up 35.9% in fiscal year 2020, well above Cambridge Associates’ private equity and venture capital, which were up 9% and 11.8%, respectively. Markov’s analysis also estimated that Brown’s exposure to technology almost doubled over the past three years.

“It is quite plausible to assume that technology is the missing factor that could explain the performance of Brown’s stable of long-short hedge fund managers when all ‘longs’ cancel out with all ‘shorts,’” Markov said.

In its analysis, Markov created a portfolio of generic asset class benchmarks, as well as a technology sector index, which were intended to predictively mimic the annual return of the Brown endowment portfolio. Comparing its quantitative analysis of annual returns and published allocation numbers taken from financial statements, Markov noted the similarity of the trends captured by rapidly increasing venture capital allocation and dwindling exposure to real assets.

At the same time, the research firm said its analysis overestimated private equity allocation while underestimating public equities with the combined allocation being about the same.

Three key takeaways from Markov’s analysis include:

  1. Brown’s investment team’s desire for the best talent could have created a significant over-exposure to the technology sector, which has so far worked to its advantage.
  2. Diversification is key—especially with a portfolio of hedge funds, which diversify at a faster rate than a portfolio of stocks due to the cancellation of opposite bets/themes between funds resulting in index-like behavior and returns.
  3. Significant alpha can often signal the deficiency of the model or a missing factor instead of a “skill.”

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Home > News > Asset Allocation > Congress Mulls Expanding 401(k) Enrollments, Easing Retirement Fund Withdrawals
Asset Allocation

Congress Mulls Expanding 401(k) Enrollments, Easing Retirement Fund Withdrawals

Popular bipartisan plan seems thwarted in the lame duck session, but has good chances in 2021.

By Larry Light


A proposed law to increase the age for mandatory retirement fund withdrawals and to boost 401(k) enrollment may be stuck for now in the lame duck Congress, amid legislative gridlock over new COVID-19 relief.

The bill, which enjoys bipartisan support, is unlikely to clear Capitol Hill in the short time remaining in the current session, said Andrew Remo, chief lobbyist for the American Retirement Association, in a statement. He noted that no “mark-up” (a committee meeting to actually write the measure) is scheduled.

In its remaining weeks, the present Congress likely will be embroiled in the ongoing controversy over more federal stimulus to combat the pandemic recession.

Whenever lawmakers do get around to the bill, namely next year, it should have good odds of passage, Remo said. In the House Ways and Means Committee, which has jurisdiction over it, both the panel’s chair, Richard Neal (D-Mass.), and its ranking GOP member, Kevin Brady (R-Texas), are in favor of the legislation.

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On the Senate side, Republican Rob Portman of Ohio and Democrat Ben Cardin of Maryland are big supporters, and both belong to the Finance Committee, which would handle the plan.

One of the key provisions of the bill would increase the age for the mandatory withdrawal of money from individual retirement accounts (IRAs), 401(k)s, and the like. The law used to set that date at age 70½, but Congress last year upped that to 72. Under the new proposal, the withdrawal age would climb further, to 75.

The change is to meet objections that, given greater longevities, many people work longer and don’t want to withdraw money from tax-sheltered accounts before they are ready to retire.

Another feature aims to automatically enroll new employees in their company’s retirement plan, should one be offered. The new hires could opt out, but they’d have to take that step themselves. Now, many companies do automatic plan enrollments, but Washington hasn’t gotten involved much in the issue. The new bill makes auto-enrollment mandatory, with certain exceptions, such as exempting small employers.

Also, the bill seeks to boost the amount of so-called “catch-up contributions” that older Americans can make to enhance their portfolios. Now, that extra money is capped at $6,500 for retirement plans and $3,000 for SIMPLE IRAs. Under the new plan, those amounts would be lifted, for those 60 and up, to $10,000 and $5,000, respectively.

Odds are that this legislation, regardless of who controls Congress in the new year, will pass. The legislation is a companion to last year’s Setting Every Community Up for Retirement Enhancement (SECURE) Act.

In addition to raising the mandatory withdrawal age, that law made setting up retirement plans easier for small businesses and long-time part-time employees, as well as eased the ability to withdraw money from 529 education-savings plans to repay student loans.

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