Advisor.ca | Create sustainable portfolios
When I chaired the investment committee for an endowment fund some years ago, I faced a conundrum that many investors struggle with today: dwindling yield.
The fund, responsible for providing scholarships and bursaries, saw its purchasing power eroding because the portfolio was invested almost entirely in fixed-income securities.
Faced with falling interest rates, the spending policy couldn’t adapt, even with modest capital gains. The headmaster wanted to expand the bursary program and something radical had to be done.
I connected with J. Peter Williamson, then a professor at the Amos Tuck School of Business at Dartmouth College and a consultant to the Commonfund, an organization created by a grant from the Ford Foundation that invests for endowment and not-for-profit organizations in North America and the U.K.
Professor Williamson, a Toronto native, introduced me to the Yale formula and emerging trends in endowment investing that, like pension plans, have long time horizons, but unlike pension plans, need to provide stable annual income. If your clients are in or approaching retirement, learn from endowment fund strategies that allow for more stable drawdowns and focus on risk in a way that’s different than pension and mutual funds.