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Foundation Investment Advisors and Consultants
 

Insights and Publications

Colonial Consulting provides insights and analysis on current conditions and challenges, market environment, and industry trends.

Quarterly Commentaries

  • Although five years have now passed since the collapse of Lehman Brothers, the fallout from the Financial Crisis lives on. While there are many unique aspects of the current climate, the tendency of investors to be unusually fearful despite large market gains stands out. At the same time, we have also noted a far more typical reaction to strong markets - subtle but important concerns have emerged regarding the costs1 that investors are paying for alternative investment strategies in general and hedge funds in particular. While hardly a major shift in attitude, it does seem as though the climate has changed from a few years ago when no price was too high for protection against 鈥渢ail events鈥...

  • We often refer to selecting active managers as 鈥淲inning the Loser鈥檚 Game,鈥 an admission of the fact that the average performance of all the active managers in a given asset class should approximate the index鈥檚 return minus the average fee charged by those active managers. We recognize the realities involved in active management, and we regularly recommend index funds in those situations where an excellent active manager is not available. In fact, a large well-known index fund provider is one of the top-5 鈥渕anagers鈥 utilized by our clients. However, we also recommend a host of active managers, many of whom have added tremendous value for our clients over the years. An attribution analysis on our client portfolios versus peer universes has shown that more than half of our clients鈥 outperformance has come from active manager alpha (the balance is largely due to differences in asset allocation)...

  • Amongst the many remnants of the Global Financial Crisis are capital markets that are subject to significant macro-economic volatility and investors who have elected to prioritize exogenous and extreme risk when constructing their portfolios. This has led to considerable interest in market volatility along with the idea of hedging extreme or 鈥渢ail鈥 events. One now widely-known measure of risk perception is the Volatility Index or the VIX. This Commentary explores the history and composition of the index and also outlines our views on tail risk hedging.

  • As 2012 comes to a close and we reflect on the seemingly endless number of firestorms that plagued the investment landscape, one in particular remains in the forefront of our minds: that being sparked by an article in the New York Times about the effectiveness of higher education endowments in generating investment returns above a passive index blend (James B. Stewart, 鈥淯niversity Endowments Face A Hard Landing鈥, New York Times, October 12, 2012). The ultimate conclusion of the article is that the 鈥渆ndowment model鈥 of investing in a broad array of assets, including alternatives, may be ill鈥恠uited to those but the largest investors.

    While we take issue with the data used to draw the conclusions for the article, we do believe it raised an exceptionally important topic for long鈥恡erm investors: has the endowment model been effective in achieving strong risk adjusted returns? Before delving into the topic at hand, we鈥檇 first like to set the record straight in terms of the historical returns of college and university endowments.