Endowment Investors Might Learn a Lot From Keynes
(October 3, 2012) — How has British economist John Maynard Keynes impacted the way investors handle endowment portfolios today?
According to one paper, the answer is “a whole lot.”
The paper, by David Chambers and Elroy Dimson, from the University of Cambridge and London Business School respectively, notes that the King’s College endowment–which Keynes managed–permitted Keynes to give full expression to his investment abilities. Keynes revolutionized the way his Cambridge college endowment was managed, the research notes.
“First, his strategic allocation to equities was path-breaking. Not until the second half of the twentieth century did institutional fund managers follow his lead,” according to the research. “His aggressive purchase of equities pushed the common stock weighting of the whole endowment’s security portfolio over 50% by the 1940s. This was as dramatic and far-sighted a change in the investment landscape as the shift to alternative assets in more recent times. At the same time, his approach to equity investment also anticipated the development of small stock and value investment strategies which have been defined retrospectively by modern research.”
Meanwhile, the paper asserts that Keynes’ willingness to take a variety of risks in King’s portfolio and to depart dramatically both from the market and institutional consensus exemplifies the opportunity available to long-term investors such as endowments to be unconventional in their portfolio choices.
Additionally, “the contrast between the receptive environment at King’s and the conditions he faced at other institutions reminds us of how critical, conditional on possessing investment talent, is the right organisational set-up.”