Much has been said in the past about the world's largest university endowment fund - that of Harvard University, whose most famous overseer is the current Pimco CIO and part-time blogger Mohamed El-Erian. Yet relatively little light has been shed on the endowment fund of that "other" school - the one with the original business school, and whose alums have been largely credit with shaping the modern financial world as it stands: the University of Pennsylvania. Also, the one which for many years has oddly underperformed its peers, yet which during the financial crisis suffered the least of its peer Ivy League peers. Until now. In his latest letter, Oaktree's Howard Marks shares the lessons he learned as the Chairman of the Penn endowment in the period from 2001 to 2010. He also analyzes the various angles from which one should approach in evaluating investment performance and track records, in his traditionally meticulous and informative style - a lesson very much needed in today's market climate of bipolar euphoria.
- The whole letter can be found below, but for those strapped for time, here are his conclusions on what makes for a successful investment strategy:
- I lean strongly toward investing defensively unless asset prices are so low and investors so chastened that less cautious behavior is called for.
- In Penn’s position endowment-wise, an emphasis on defense was appropriate.
- The euphoric market behavior of the late 1990s, and especially 1999, made elevated caution particularly compelling.
- It was certainly the events that unfolded that made my actions seem as right as they do.
- The events marking the crisis came largely as a surprise. Although I was increasingly worried in the period from late 2004 through the first half of 2007, I did not foresee the specific events of the global financial crisis of 2008, or its severity.
- Although Penn’s approach was generally cautious throughout, we increased the defensiveness of the portfolio significantly in 2006-08. Thus it can’t be argued that the portfolio stayed equally cautious all the time and eventually was bailed out by the crisis.