The Endowment Model: Key Considerations
Also Interesting
- Successful endowment model investors generally understand the complexity of the approach and have experience and resources to manage them.
- One of the biggest mistakes an investor can make is adopting a strategy that they or future constituents won’t be able to adhere to in future years.
- Investing in public markets is generally a passive endeavor—even if you hire an active manager, because the day-to-day management of the companies rests with others. Private investing offers more control and, thus, often provides greater opportunities for better-than-public market returns.
- The endowment model likely will have higher returns over a longer period, typically 10-20 years, and generally lower risk vs. a traditional 60-40 allocation.
- Historically, equity-type investments likely will get you 5% to 7% returns above inflation and bonds will get you 1% to 3% over the long term. If you’re in that swing zone, there is no compelling reason to go to the endowment model.
- I am very suspicious of “risk budgeting” or “risk portfolio rebalancing” or any other quantitative “risk” based approaches. They have not worked.
- The question is: Is now the time to do an endowment versus a 60-40 portfolio? And, in my mind, it’s neither
