Endowment Index Falls 9% in 2018 | Chief Investment Officer

The Endowment Index calculated by Nasdaq OMX fell 9.09% for the year ended Dec. 31, compared to a 4.38% drop in the S&P 500 for the same period, and a 17.6% gain for the index in 2017. For the fourth quarter, the index tumbled 10.22%, compared to a 13.52% decline in the S&P 500.

The down year was attributed to the confluence of a slew of negative factors, such as a stronger US dollar, which weighed down international and emerging markets during the second half of the year; global recession fears, US Federal Reserve rate hikes, higher interest rates, a slowdown in corporate profits, and an escalation in the US-China trade dispute.

The year had started out looking like a continuation of 2017, with strong gains and low volatility as the index rose 5.51% through Jan. 26. However, concerns over rising US interest rates and a US-China trade war led to a correction in global markets that saw the index close out the first quarter relatively flat. The index edged lower for the second quarter, before rebounding slightly to end the third quarter up 2.04%. However, slumping markets in the fourth quarter helped the index end the year in the red.

Only three of the index’s 19 components posted gains in 2018 as international developed fixed income returned 2.94%, US T-Bills gained 1.70%, and managed futures rose 0.32%. Meanwhile, eight of the index’s components posted double-digit losses for the year, led by emerging markets-China, which plunged 28.05%, commodities-timber, which fell 21.11%, and commodities oil & gas, which ended the year down 19.36%.

The index is based on the portfolio allocations of more than 800 educational institutions managing over $500 billion in total assets. Each of the 19 sub-indexes that comprise the index are investable, with more than 30,000 underlying securities within those sub-indexes. The current target allocation is 52% alternatives, 36% equity, 8% fixed income, and 4% liquidity.

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Tags: 2018, Endowments, Nasdaq OMX

The stock market gave investors a wild ride in 2018, but the most energetic investment action of all came from shareholder activists, who targeted a record number of companies last year.

Activists stormed the barricades of 226 companies in 2018, versus 188 the year before, according to a study by investment firm Lazard. And despite a volatile stock market in the last quarter, which might have given these investors pause lest their actions damage targets’ value, this period was the most active of any fourth quarter in history, the research showed.

With proxy season coming up, there are few signs that these dramas will abate anytime soon.

By Lazard’s count, the most prolific activist last year was Elliott Management, with 22 new campaigns launched. Founded 42 years ago by Paul Singer (Elliott is his middle name), the firm showed a good success record.

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Displeased with Sempra Energy’s performance, for instance, Elliott and ally Bluescape won two board seats. Elliott pressured Athenahealth into putting itself up for sale. And it forced Hyundai into a restructuring plan and a share buyback (although the activist firm still remained unsatisfied).

Another veteran of the activist world, Carl Icahn, also was busy. He and another activist, Darwin Deeson, took control of Xerox’s board. In the process, a merger they opposed with Fujifilm was scuttled. Icahn didn’t win everything, though: He tried to block Cigna’s acquisition of Express Scripts, but later went along.

Meanwhile, Daniel Loeb’s Third Point Management launched an assault on family-controlled Campbell Soup, and succeeded in winning two board seats and a say on the new CEO.

M&A was the biggest factor in attracting activists, Lazard found: One-third of the campaigns begun last year were driven by mergers and acquisitions, with pushing for a company sale the biggest goal. Deep-sixing or sweetening existing deals was the next objective, followed by breaking up a company or forcing it to divest businesses.

Some more fun facts from 2018 illustrate how serious these folks are: Nine of the top 10 activists invested more than $1 billion. Overall, activists deployed $65 billion in capital, compared to $62.4 billion in 2017. And the activist field is growing: a record 131 investors were at it, with 40 first-timers versus 23 the year before.

And as Icahn once described the lot of an activist investor: “You learn in this business that if you want a friend, get a dog.”

Tags: Carl Icahn, Lazard, M&A, shareholder activist