The Futility of the Endowment Model

In the past two decades, the so-called endowment model has been adopted by hundreds of endowments, foundations and advisors – particularly those serving ultra-high-net-worth clients. By aggressively allocating to illiquid alternative asset classes, those investors hoped to duplicate the results of Yale and other top-tier institutions.

New research exposes the futility of those efforts.

The average university endowment does not earn any risk-adjusted return (alpha) and would have done just as well investing in a 60/40 stock/bond portfolio, according to a new paper, “Do (Some) University Endowments Earn Alpha?”, by Brad Barber and Guojun...