Am I overeacting here?
I recently joined the Board of Directors of a non-profit with a very large (8 figure) endowment. The investment team is briefing us on its performance and sent us a powerpoint in advance. However, when I reviewed it I had some concerns.
The first things was that is was all just Vanguard index funds. The managers have made a roughly 60/40 fund with no leverage, factor tilts, private markets or anything. At first I thought this would be strange for a fund this large but better no private market then some I guess. Then I looked at the return rate. Since 2007 the managers returned 6.38 % gross annually. That gave me pause since a 19 year time table should have a much higher return.
So, I fired up Portfolio Analyzer and did a standard backtest portfolio run with three sample portfolios: a 60% VT / 40% BND fund, a 100 VT portfolio just for fun, and a 60% VTI / 40% BND fund as a benchmark. The results show a 5.35%, 8.62 %, and 7.10% inflation adjusted annual return respecfully. That made me very uneasy as this means we may have been off target for years.
So I thought a closer look at the Vanguard funds and started seeing more problems. One was massive fund overlap. I took all the funds amounts and percentages and placed them in a fund overlap modeler and saw they double dipped in international stocks and QUADRUPLE dipped in bond currency futures since they brought four different Vanguard bond indexes with the same inflation hedge. In addition all the Vanguard expense ratios added up to 0.062% and that is on top of the managers fees which was not included in the powerpoint anywhere.
Is this normal for a institutional investor fund? I don't want to go into this meeting guns blazing without being sure something is up here. I have never seen or heard of managers intentionally overlapping index funds instead of using options or hedging. Also I don't see a reason why the manager's fee schedule was not provided. How should I approach this?