The Endowment Model of Investing: Return, Risk, and Diversification - Hardcover

Leibowitz, Martin L.; Bova, Anthony; Hammond, P. Brett

Hardcover

ISBN 10: 0470481765 ISBN 13: 9780470481769

Publisher: John Wiley & Sons Inc, 2010

Synopsis

A cutting-edge look at the endowment model of investing

Many larger endowments and foundations have adopted a broadlydiversified asset allocation strategy with only a small amount oftraditional U.S. equities and bonds. This technique, known as the"endowment model of investing," has demonstrated consistentlong-term performance and attracted the attention of numerousinstitutional and individual investors.

With The Endowment Model of Investing Leibowitz, Bova,and Hammond take a closer look at the endowment model withcustomary research sophistication and attention to detail.Throughout the book, they examine how the model provides trulyoutstanding real returns, while keeping a close eye on the risksassociated with this method of investing. Along the way, theauthors offer practical advice on incorporating the endowment modelinto your own investment endeavors and reveal what it takes to makethis method work in the real world.

• Details the growing debate about the endowment model ofinvesting and discusses how to use it successfully
• Written by an authority on endowment investing andnon-traditional asset allocation strategies
• Offers expert insights on understanding risk and return in nontraditional asset allocation

If you want to gain a better grasp of one of the most successfulforms of investing, then The Endowment Model of Investing isa book you need to read.

About this title

About the Author

Martin L. Leibowitz is Managing Director in the U.S.Research Department at Morgan Stanley. Prior to working at MorganStanley, he was vice chairman and chief investment officer ofTIAA-CREF. Leibowitz is a leading authority in the fields ofsecurity analysis and portfolio allocation. He is the author offour books, including Franchise Value, and 138 articles,eight of which have won the prestigious Graham and Dodd Award forexcellence in financial writing.

Anthony Bova is a Vice President in the Morgan StanleyResearch Department, focusing on institutional portfolio strategy.He recently won the ninth annual Bernstein Fabozzi/Jacobs LevyAward for coauthoring the article "Gathering Implicit Alphas in aBeta World," which ran in the Spring 2007 issue of the Journalof Portfolio Management.

P. Brett Hammond is a Managing Director and ChiefInvestment Strategist for TIAA-CREF Asset Management. His group isresponsible for asset allocation modeling, institutional advising,economic and market commentary, and investment product andportfolio research. Within TIAA-CREF, Hammond has also publishedextensively on pension issues, developed new approaches toperformance attribution, and played a key role in the creation ofthe company's life-cycle inflation-linked bond funds.

From the Back Cover

Praise for The Endowment Model of Investing

"This is a terrific book–required reading for any CIOresponsible for the management of long-term investmentportfolios."
—Lyn Hutton, Chief Investment Officer, Commonfund

"In my judgment—a must-read for every chief investmentofficer or strategist."
—Allan S. Bufferd, Treasurer Emeritus, MIT

"Shed(s) . . . light on . . . [endowment] portfolios during thefinancial crisis, and why their pain was predictable,inevitable,and . . . necessary for long-term success."
—Andrew K. Golden, President, Princeton University InvestmentCompany

"This is a must-read for every institutional investor concernedwith portfolio risk management. Full of important insights androbust analyses."
—Ian Kennedy, former global director of research, CambridgeAssociates

"An elegant, rigorous, and articulate examination of . . . theendowment model . . . and why skillful implementation is alwayscrucial."
—Charles D. Ellis, author, Winning the Loser'sGame

"Is the endowment model broken? The answer, as provided . . .[in this] . . . appealing mix of analysis and common sense . . . is'No'."
—Jack R. Meyer, Managing Partner and CEO, ConvexityCapital

"A penetrating analysis of the trend towards allocating intomultiple asset classes that shows when such diversification helpsto control fund-level risk—and when it does not!"
—Jim Simons, Chairman, Renaissance Technologies LLC

"All-in-all . . . a balanced and exceptionally thoughtful study. . . that is sorely needed . . . a lot of great insight into basicfinance and investing. Heartily recommended."
—Clifford Asness, Chairman, AQR Investments

"A valuable new approach that probes more deeply into thevarious forms of diversification."
—Frank J. Fabozzi, Professor in the Practice of Finance, YaleSchool of Management, and Editor, Journal of PortfolioManagement

"A major advance in . . . investing for endowments . . .provides a way to incorporate . . . 'alphas' into a risk/returnframework . . . I think the book is great."
—David Booth, CEO, Dimensional Fund Advisors

"Many institutional funds may find this framework insightful forasset allocation and risk management purposes."
—Roger Clarke, Chairman, Analytic Investors, Inc.

"A compendium of insightful and actionable principles for theendowment space. . . an important . . . framework for success formany institutional portfolios."
—H. Gifford Fong, President, Gifford Fong Associates

"A must-read for assessing . . . the future of this trustedmodel. This very readable book calls for maintaining the endowmentmodel but adjusting our time horizons."
—Edgar Sullivan, Managing Director, Promark Global Advisors(formerly General Motors Asset Management)

From the Inside Flap

"Any fund sponsor or portfolio manager considering alternativeassets should read this book to gain critical insights into therisks and potential rewards." Bruce I. Jacobs, PhD, Principal,Jacobs Levy Equity Management

The modern "endowment model" with its diversification intomultiple asset classes will continue to be an attractive option forinvestors who have a truly long-term time horizon and are able toride out bouts of significant short-term volatility. But at thesame time, investors should be cautious about accepting theendowment model's past periods of higher returns as a simplistictemplate for the future.

Nobody understands this better than authors Martin Leibowitz,Anthony Bova, and P. Brett Hammond—leading authorities onasset allocation and institutional portfolio strategies. Now, inThe Endowment Model of Investing, they share their extensiveexperience with you and reveal what it takes to make this approachwork in today's dynamic financial markets.

Filled with in-depth insights and expert advice, this resourceclearly focuses on the endowment allocation model and will helpinvestors understand the value in its diversification, examine itstheoretical underpinnings and its empirical behavior, and reassesswhere and when it should be used given its benefits andlimitations. By adopting a new approach to the risk and returncharacteristics of individual asset classes—both standard andnon-standard—and then exploring how such a reformulationaffects their role within a total portfolio, The Endowment Modelof Investing provides a better approach to evaluatingdiversified portfolios and reaping their full potentialbenefits.

This informative guide is divided into four comprehensiveparts:

• Part I: Alpha/Beta Building Blocks of PortfolioManagement: demonstrates that asset classes and portfolios can bedecomposed into equity-beta and beyond-beta components

• Part II: Beta-Based Asset Allocation: builds upon thetotal beta framework to develop analytical tools that provide adeeper understanding of the risk-return dimensions of institutionalportfolios

• Part III: Theoretical and Empirical Stress Betas:examines both theoretical and actual portfolio behavior in selectedregimes, with special attention paid to periods of significantmarket declines

• Part IV: Asset Allocation and Return Thresholds: developsimplications for the future of the endowment model

The modern endowment model is not a magic potion that willsmooth returns and lower short-term volatility, but rather astrategy for accumulating incremental returns and achieving moredivergent outcomes over the long term—which in itself is oneof the most powerful defenses against portfolio risk. For anin-depth understanding of how endowment-like diversification canimprove the investment process, The Endowment Model ofInvesting is the book to read.

Edition details

• Publisher: John Wiley & Sons Inc
• Publication date: 2010
• Language: English
• ISBN 10: 0470481765
• ISBN 13: 9780470481769
• Binding: Hardcover
• Edition number: 1
• Number of pages: 334