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The American Endowment Model

At FMB, our process embraces the main features of the US Endowment model while avoiding liquidity issues and adapting the mix of assets to be more suitable for shorter term investments (still 3 to 5 years minimum investment horizon is suggested).

A major proponent of multi-asset investing is the American Endowment Model that was developed by the likes of the Yale and Harvard Universities and used for investing their extremely substantial endowment funds. This is a strategy that is tried and tested and has proved its worth during the past 20 years or so.

One major tenet of their model is the use of alternative assets; these are asset classes that are uncorrelated with traditional asset classes such as Private Equity, Commodities, Absolute Return Strategies, Hedge Funds, Property and other less well-known investments.

If we use the FTSE 100 index as a Benchmark, we can see that the multi-asset portfolio delivers superior returns with less than half the volatility over the longer term.

Please note: Past performance is not a reliable indicator of future results. All figures are gross and do not include fees and charges.

PerformanceMulti-Asset PortfolioBenchmark
3 months 4.36 9.13
6 months 8.16 16.52
1 year 11.75 17.02
3 years 13.27 15.55
5 years 27.13 25.55
Start portfolio 288.74 226.21
VolatilityMulti-Asset PortfolioBenchmark
3 months 5.96 13.41
6 months 5.13 12.92
1 year 6.27 16.27
3 years 8.54 19.79
5 years 7.23 16.66
Start portfolio 6.78 14.391

This example highlight the benefits of diversification in a very simple way however it does not take account of the manager’s active asset allocation decisions which would hopefully add value in the good times and preserve capital more in the bad times.

It comes down to preparing you for the journey you are to undertake, giving you a good idea of how smooth (or rocky) the road to your ultimate goals and financial ambitions is likely to be. This is achieved by explaining volatility and the implications and effects volatility can have on your investment capital.

Source: Saltus LLP (2010)

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