Nine Questions Every LP Needs to Ask About Risk

Endowments have refocused on risk after suffering their worst annual performance in three years. Privcap compiled nine questions from consultants that every LP needs to ask about their portfolio construction.

As U.S. college endowments refocus on risk in their portfolios after suffering the worst annual performance in three years, LPs should be doing some soul searching about their asset allocation policy.

The annual performance report for endowments from the National Association of College and University Business Officers and money manager Commonfund shows U.S. endowments gained just 2.4 percent in the year to the end of June, 2015—down from 15.5 percent the 12 months prior.

While private real estate and venture capital were the best-performing asset classes, gaining 9.9 percent and 15.1 percent respectively, the lackluster performance highlights once again the need to be razor-focused on risk in the portfolio.

The issue reminded me of an interview I did with Paige Mueller, managing director of consultant RCLCO, in 2014, when she said: “The financial crisis brought asset allocation to the forefront of everyone’s minds and made everyone think about what they could have done differently during a capital markets event and what warning systems they have in place for future events.”

While few LPs could have predicted recent global market volatility, Mueller—together with NEPC’s principal, private markets, Sean Ruhmann— argue there are nine questions every investor should ask about their asset allocation policy, including knowing your limitations on risk. Read the article here.