Publications

- March 1, 2016: Vol. 3, Number 3

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The Endowment Model of Investing: This style of investing (with an emphasis on real assets) has been used to great success by institutional investors, and is now making its way to RIAs

by Reg Clodfelter

Most in the investment world have heard how David Swensen, chief investment officer at Yale, has left his university well endowed, expanding its coffers from $1 billion when he was hired in 1985 to $23.9 billion in June 2014.

His investment strategy, since termed the “endowment model,” expanded the purview of a traditional 60/40 stocks and bonds portfolio to include alternative assets, namely hedge funds, private equity and real assets. The model also focused on maximizing the inherent value of an endowment’s perpetual investment horizon by investing in illiquid assets that can, over time, provide an above-market return.

Every decision he made seemed to come up roses. In the decade ended June 2008, a period in which the S&P 500 delivered only 1.95 percent returns annually, his strategy yielded a per annum return of 16.3 percent.

During this period, his model saw widespread implementation — and success — throughout the in

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