Making The Endowment Model Work for Everyone

The endowment model of investing has recently been regarded as the gold standard of institutional investment practice. In actuality, few institutional allocators have the means and ability to invest as aggressively as the most extraordinary university endowments. Furthermore, in recent years, the investment returns achieved by the most significant endowments have been similar to those available from much more straightforward, liquid, and transparent portfolios, prompting some to ask if the increasing influx of funds into this investing approach is undermining its effectiveness. Polysharp Investments Limited believes that we can create returns comparable to endowment model outcomes with a significantly more cost-effective, liquid, and comprehensible investing method.

The idea of the endowment model is based on two key characteristics:

• Heavy dependence on two sources of return: equities beta and illiquidity
• A strong emphasis is placed on external manager access and selection.

A More Versatile and Achievable Model

The success of early adopters like Yale has spawned a slew of imitators! Since 1985, Yale University has earned an impressive yearly return of 13% or higher. In contrast, institutions' average/median return is lower than the results of entire stock/bond index portfolios. Maybe the Yale model isn't that easy to reproduce. Based on our research and evaluation of the endowment model, we feel the time has come to consider the following:

• Moving toward low-cost liquid investment risk implementations
• Improve results by leveraging value, momentum, and economic cycle knowledge in asset allocation strategies.