Herb,

Thanks for your thoughtful questions. I will do my best to respond to them. First, as to the sponginess (nice coinage, by the way) of value for some of their investments: in this analysis, I used returns provided by the funds, which reflect whatever valuations they use. Which is to say, I made no adjustments to mitigate the effects of sponginess and the resultant return smoothing. Had I done so, the plot points in the diagram would have moved slightly to the right In the diagram. In other words, the funds got a pass re their spongy asset values.

As for how the funds might report their performance. The best response I can offer is this. In the original JPM article I looked at the “custom benchmarks” used by 10 of the largest public funds. Compared with benchmarks based on conventional stock and bond indexes with the same level of observed volatility, the average return for the custom benchmarks was less than that of the funds’ respective stock-bond-market-volatility-based benchmark by an average of 100 bps. In that article, I referred to the custom benchmarks as slow rabbits, borrowing from greyhound-racing parlance.

We live in age of alternative facts, do we not, sir?

Richard