Practical Applications of The Outlook for Endowment and Pension Funds

Abstract

For decades, a 60/40 equity/bond allocation has been the favored allocation method for endowment and pension fund managers. In The Outlook for Endowment and Pension Funds, from the Summer 2021 issue of The Journal of Wealth Management, Haim Mozes, a professor of accounting at Fordham University’s Gabelli School of Business, and John Steffens, a founder and managing member of Spring Mountain Capital, formulate an outlook for the future performance of the 60/40 allocation.

Mozes and Steffens identify the economic conditions that drove the 60/40 allocation’s past success and then forecast future economic scenarios. Most significant to the future performance of endowment and pension funds is the possible scenario of continued low bond yields coupled with low economic growth. In that scenario, low bond yields would produce weak returns on bonds while weak economic growth would produce poor returns on equities; the overall performance of the 60/40 allocation would be weak. The authors assess the strategies that funds are considering in order to meet their target objectives in the event of such a scenario, including increasing allocations to public equities and other risky assets.