The management of colleges and universities funds is not really good in the US and the new president of the Ford Foundation, Mc George Bundy, wanted to improve it with the learning of how to make more money with their endowments. The research was led by the CRSP (Center of Research in Security Prices) at the University of Chicago. James Lorie, director of the CRSP, convinced Fischer to work on this project, which had two main objectives: to collect information on investment practice from university treasurers around the country and to develop appropriate methods of portfolio performance evaluation.
Two theories were opposed, one shared by the academics whose belief was that markets were efficient but the security analysis futile; the other coming from the practitioners who thought the markets as inefficient in opposition to the crucial necessity of the security analysis to improve any portfolio performance. As a result, Fischer, in collaboration with Treynor, proposed a new financial way to allocate funds between two portfolios with a passive one reflecting the academicians’ theory and an active one, reflecting the ambition of practitioners.
This research highlighted the way Fischer liked to work, by buckling down to the same problem from two points of view simultaneously.
A for Tom, although I'm tempted to take off for the stray space in McGeorge.
ReplyDeleteIt's more accurate to say that the management of funds by colleges didn't used to be very good. It's OK now. In fact, the bigger complaint tends to be that university portfolio managers can't achieve the unrealistically high portfolio returns that many people began to think were normal over the last 25 years.
N.B. A big problem has been clueless state legislators who mandate that universities invest their portfolios in "safe" assets. Tulane University fell behind its competitors (mid-size, good, private universities in the South) because it was once the University of Louisiana, and its endowment was constrained to invest in lower return securities than other comparable schools.
Extra credit to the first person to turn in a handwritten explanation of what McGeorge Bundy is really famous for.