The Yale (or Endowment) Model
The Yale Model was developed by David Swensen and Dean Takahashi and is described in Swensen's book Pioneering Portfolio Management. It consists broadly of dividing a portfolio into five or six roughly equal parts and investing each in a different asset class. Central in the Yale Model is broad diversification and an equity orientation, avoiding asset classes with low expected returns such as fixed income and commodities.
Particularly revolutionary at the time was his recognition that liquidity is a bad thing to be avoided rather than a good thing to be sought out, since it comes at a heavy price in the shape of lower returns. The Yale Model is thus characterized by relatively heavy exposure to asset classes such as private equity compared to more traditional portfolios.
This type of investing - allocating only a small amount of traditional U.S. equities and bonds and more to Alternative Investments - is followed by many larger endowments and foundations and is therefore also known as the "Endowment Model" (of investing).
Read more about this topic: David F. Swensen
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