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Endowment model

An approach associated with large university endowments, allocating heavily to illiquid alternatives on the basis that a perpetual horizon lets the investor harvest an illiquidity premium.

Endowment model — An approach associated with large university endowments, allocating heavily to illiquid alternatives on the basis that a perpetual horizon lets the investor harvest an illiquidity premium.

The model's association with strong historical returns at a handful of large university endowments has made it widely emulated, though critics note that its illiquidity-premium thesis depends partly on manager access and scale that smaller allocators attempting to replicate it may not actually have.

Frequently asked questions

Which institutions are most associated with the endowment model?

Large university endowments, most famously Yale's under David Swensen, are the model's best-known practitioners and the source of its widespread influence on institutional asset allocation.

Does the endowment model work for smaller allocators?

Its results at scale depended partly on access to top-tier managers that smaller allocators may not be able to replicate, which is a genuine and often-debated limitation of copying the approach directly.

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Closed-end fundA fund with a fixed life and no ongoing redemptions. Standard in private equity, venture a J-curveThe tendency of a private fund's returns to be negative early — fees and costs precede rea AllocatorAn institution or individual that allocates capital to external managers — pensions, endow

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