Copying David Swensen’s Endowment Model at Yale

At most billion-dollar endowments for American colleges and universities up until the early 2000s or so, the only question was: “What percentage of the portfolio should be invested in stocks, and what percent in bonds?” The scope of being “original” was limited to investing in small-cap stocks, real estate investment trusts, or purchasing debt issued by a governmental entity outside of the United States.

David Swensen, who has earned 12% returns since managing a portion of Yale’s endowment in the early 1980s, gained attention for investing in alternative investments that led to outperformance of average American endowments by almost six percent annually.

In particular, Swensen would invest in highly illiquid investments, capturing a premium that is often believed to exist due to the non-saleability of a particular asset. If you start an LLC whose sole asset is a rental property that earns $1,000 per month, the ownership of that property … Read the rest of this article!