Since then, a surge towards managers and assets carrying the ‘alternative’ tag has reshaped the institutional landscape. As more funds’ asset allocations were reworked in the image of those published by the endowments, the dangers of replication became clear. The alternatives universe does not hold enough opportunities for everyone to shoot the lights out, and not all funds are as well resourced, or have the same tolerance for illiquidity, as the endowments.

“Everyone has an eye on it and people are moving in that direction,” MLC’s Abley says. “It’s good, it’s healthy, it could be innovative and exciting, but it could also be hard and potentially dangerous.” In Australia, industry funds have probably gone furthest in the direction of endowments. They have built large allocations to infrastructure, a sector in which they secured early access similar to the way Harvard and the largest endowments gained first-mover advantage in venture capital and oil and gas assets.

But, inevitably, markets have changed in the years since the top endowments formulated their asset allocations. This holds potentially serious implications for mainstream institutions that have gone on to invest heavily in alternatives. In a research paper discussing the success and influence of the elite endowments, Abley asks: “will yesterday’s strategy work tomorrow?

“Trying to emulate what worked in the last 15 years is a flawed approach for most investors, which could see them crank up their illiquidity without generating better risk-adjusted returns,” he says. “Given the risks that the endowment guys take, you have to ask: is it worth it?” The $2.9 billion Westscheme allocates 45 per cent of its assets to the target return portfolio within its default option, the Trustee’s Selection, which invests, usually directly with co-investors, in infrastructure, private equity, property, natural resources and other private market assets. Much of the portfolio has been built under the guidance of asset consultant Access Capital Advisors, whom Westscheme appointed in 2000. Have the endowments informed Westscheme’s SAA? “Absolutely,” confirms Howard Rosario, the chief executive of Westscheme. “They are a guide to organising our investment approach.”

However to say the fund is merely following in the footprints of the endowments is “wrong and simplistic”, Rosario says. The $80 billion Queensland Investment Corporation (QIC) invests in alternatives funds modeled on endowments strategies and staffed, in part, by their former employees. QIC allocates to the endowment-style funds – Makena Capital Management, whose founder lead the Stanford endowment; and GEM, whose executives worked for Duke’s endowment – in search of diversification, high returns and to attain insights.

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