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Capital Allocators · July 22, 2024 · 52m

Is the Endowment Model Still Working?

Ted Seides

Seides evaluates the endowment model (heavy allocation to alternatives: PE, hedge funds, venture, real estate) 20 years after David Swensen popularized it. The verdict: it works for Yale-caliber allocators but has been disastrous for smaller endowments that lack the access and expertise.

Canon

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Biographies as mentors — Seides argues that David Swensen's Pioneering Portfolio Management is the most important text for institutional investors, but most readers apply the strategy without the judgment Swensen brought to it
Seides argues that Swensen's book taught the strategy (allocate to alternatives) but couldn't teach the judgment (which alternatives, which managers, when to be patient). The biography-as-mentor gave the framework; execution requires the wisdom that only experience provides.
ClaudeChatGPTGemini

Highlights

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The endowment model works for Yale ($41B, top-tier manager access) but has failed most imitators — smaller endowments lack the access, expertise, and patience to execute it
Seides presents the data: Yale's endowment returned 13.1% annually over 20 years. The average university endowment returned 7.8%. The gap isn't strategy — it's execution. Yale has access to the best managers, the best staff, and a board willing to be patient. Most endowments have none of these.
ClaudeChatGPTGemini