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The Endowment Model

The Endowment Model is intended to replicate the investment style that large institutional investors and large Endowments use to manage their respective investments.  Endowments have similar investment objects that High Net Worth Individuals and Retirees have.  They want to grow the value of their assets reasonably over time, and generate enough income or dividends to meet their cash flow needs during the year.

Large Universities like Harvard Stanford,  and Yale are usually the first examples used to describe the process.  If you click on the university name, you will be linked to their respective endowment website which will show how they are investing each of the endowments.

The following is from directly from the Yale webstie and describes their current investment philosophy.

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Asset Allocation In Endowment Models


Over the past 30 years, Yale dramatically reduced the Endowment's dependence on domestic marketable securities by reallocating assets to nontraditional asset classes. In 1989, nearly three quarters of the Endowment was committed to U.S. stocks, bonds, and cash. Today, domestic marketable securities account for less than one-tenth of the portfolio, while foreign equity, private equity, absolute return strategies, and real assets represent over nine-tenths of the Endowment.

     The heavy allocation to non-traditional asset classes stems from their return potential and diversifying power. Today's actual and target portfolios have significantly higher expected returns and lower volatility than the 1985 portfolio. Alternative assets, by their very nature, tend to be less efficiently priced than traditional marketable securities, providing an opportunity to exploit market inefficiencies through active management. The Endowment's long time horizon is well suited to exploiting illiquid, less efficient markets such as venture capital, leveraged buyouts, oil and gas, timber, and real estate.  

Yale's Investment Portfolio over time


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What is not obvious to the normal investor, is that the top 5 categories (Leveraged Buyouts, Venture Capital, Natural Resources, Real Estate, and Absolute Return) are all investments that are outside the Public Markets.  The Foreign Equity, Domestic Equity and Fixed Income are all investments that are done at the Institutional level.  You should note that their are no, or essentially zero bonds.


Comparing Endowments and 60/40 Model




Comparing Asset Allocation between Endowments and 60/40




Typical Endowment Model





Phase 2 Advisors Target Endowment Model








Phase 2 Advisors Target Retirement Endowment Model

Comparing the Phase 2 Advisors Endowment Model to the Retirement Endowment Model, we try to protect our client's equity exposure (stock market loss) by placing about 30% of the assets into a series of annuities.  Our clients are still able to participate in market gains for their protected withdrawal value, and some of the newer annuities that are on the market in the last 6 months (post COVID) will also protect up to 20% of any losses with the actual account value.

Annuities are complex, and not all annuities are created equal.  If you have any questions about existing annuities, or would like to look at different options, please let us know.


IMPORTANT:  One of the investment products we have used for some of our clients, is an annuity that also provides a growing amount of genuine Long Term Care benefits, not just an accelerated spending of the cash value.  


There are material differences between the terms under which endowments and individuals can invest in alternative investments.  These differences include, but are not limited to commissions and fees, conflicts of interest, access to investment opportunities, size, investment time horizons, and the ability to tolerate illiquidity.  There is no standard or exact definition of the endowment model.  Portfolio design, specific investments and ultimately performance vary considerably among endowments and investors.  Kalos does not claim that any investor will achieve the same result as any endowment, institution, or other investor.  Kalos’ Investment Adviser Representatives have a conflict of interest when they recommend securities where they earn a commission as Registered Representatives of Kalos Capital.  We address this conflict by disclosing the fees and commissions related to the investments recommended to our clients.  Also, Kalos representatives do not earn both advisory fees and brokerage commissions on the same assets.