The Endowment Model: The Quest for Return Enhancement and Risk Management

Feb 24 2022 | 3 min

During our February webinar, Senior Advisor and Chief Strategist to The Family Office David Darst discussed with Naji Nehme, Chief Investment Officer at Petiole Asset Management AG., how the endowment model applies to private wealth management. Major highlights included:

  • The endowment model was developed by David Swensen when the endowment funds of top universities, like Yale, performed poorly after the 1970s and needed a new investment approach that entailed giving up some liquidity to capture higher returns, hence private market investments.

  • The endowment model entails devoting time to the spending policy and asset allocation based on diversification, rebalancing and risk management.

  • Lacking the extensive resources of endowments in terms of analysis teams and tools, private investors must work with experienced and influential investment managers in the alternative space.

  • Successful investing in alternative assets requires a long-term view, good asset class selection, realistic risk expectations and monitoring.  

  • Good risk management requires a thorough understanding of risk. Measuring and hedging risks helps protect the portfolio and the investor’ psychology alike.

 

 

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