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Adapting the Yale Model for Clients

March 26th, 2013

by C. Thomas Howard, PhD and Lambert Bunker

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

The Yale University endowment fund is one of the most successful in the country, with a 10-year return besting the endowment universe average return by 300 basis points and the Wilshire 5000 return by 400 basis points. David Swensen is the architect of this program, and his guiding principles are widely used to manage large endowments. They are equally useful for client portfolios.

Swensen has written extensively about the approach used by Yale to construct portfolios and hire asset managers. In simple terms they make better asset allocation decisions and hire better investment managers. The results are provided in the table below.

Yale Asset Class results Beat Benchmarks

Several pillars undergird Swensen’s approach, and can be used by advisors in what we call the “Personal Endowment Model”:

  • Separate short-term and long-term investment buckets,
  • Careful strategic allocation, and
  • Select superior active managers.

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