The Endowment Model is Getting Crowded Says El-Erian

I'm sure David Swensen realized when he wrote "Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment" that he would inevitably attract a few followers to his diversification philosophy. His current counterpart at Harvard, Mohamed El-Erian, confirmed in an interview last week that Swensen's book has played a role in convincing endowment managers to diversify more fully, crowding some of the markets that Yale and Harvard have been in for years. In El-Erian's own words:

"More people are replicating what we do. The endowment model is very much in vogue. There have been many articles in the press trumpeting how well endowments like Harvard's and Yale's have performed. And David Swensen, who brilliantly heads up Yale's endowment with impressive long-term performance, has written a great book showing how endowment management is done. So now lots of central banks and pension funds are trying to become more like endowments. The space is becoming more crowded.

Accordingly, we are spending a lot of time thinking about the related challenges and how we would be able and willing to differentiate ourselves. We have to play the smarter game. And that's always complex, never easy."

As always we will be tracking significant changes in Harvard and Yale's endowment portfolios looking for clues on how El-Erian plans on differentiating himself.

Also in the article were 4 key themes that El-Erian think effect long-term investors:

1. International Diversification and Commodity Exposure are increasingly important.
2. Large Caps will outperform small and mid-cap companies in part because of the boom in private equity.
3. Inflation is picking up, using TIPS is a good hedge against that rise.
4. Foreign Central Banks will look to diversify their reserves to other parts of the world.

To read the article in full go here.