The art of liquidity management
Ben Davis reports:
According to the Chronicle of Philanthropy statistics, it seems that between 2004 and 2006, MoMA eliminated all of its cash holdings (11 percent of its endowment value before that), dramatically upping its hedge-fund exposure.
This is just yet another example of endowments overestimating their risk appetite and underestimating their liquidity needs. It’s largely, I think, a function of the fact that the people who sit on the boards of these institutions — and especially on the committees overseeing investment decisions — tend to come from the financial world. As such, they overvalue alpha generation, and undervalue safety and common sense.