Strong long-term performance has made the Yale University endowment fund—with a mere 4% weighting in U.S. stocks and heavy allocations to alternative investments– the widely accepted diversification model, according to a recent article in Barron’s.  In the last ten years, however, the approach hasn’t worked so well.

The fund has “lagged the U.S. equity market amid one of the great bull runs in history,” the article says, adding that a buy-and-hold investor in the S&P 500 index has been able to outperform most endowments over the past ten years. The fund has long been led by David Swensen who, in the fund’s annual report last year, rebuked widespread grousing concerning fees paid by endowments. Arguing that strong active management had contributed to Yale’s performance over the past several decades, he wrote, “While passive investment strategies result in low fee payments, an index approach to managing the university’s endowment would shortchange Yale’s students, faculty and staff, now and for generations to come.”

The article asserts that “Yale’s allocation to U.S.  stocks is simply too low,” and that Swensen might need to concede that passive strategies have shown well over the past decade. It also poses the question as to whether the long-standing diversified models used by many universities will protect endowments from a possible market downturn. “That may be an optimistic assumption,” it argues, “given high correlations among many asset classes and particular risks in private equity and venture capital.”