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Portfolio Solutions founder Rick Ferri on the Yale Model and the institutions that have tried to mimic the school’s returns.
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Much of the -- heavily these.
The Yale model have you heard of this well it has been a multi billion dollar blessing for the Yale University endowment fund for the last twenty years but.
Has it been a curse for other large institutions trying to mimic its returns Rick Perry portfolio solutions founder.
Joining us now -- -- Fox Business exclusive from San Antonio Texas talking about the Yale curse and Rick.
Thousands of fund managers across the nation and around the world may -- how very old and painful death after many many years of trying to mimic the returns of the Yale endowment fund without doing yet.
Why is it so elusive some let's talk about how they invest so people get -- idea what the model really yes.
-- -- is that thanks for having me trust talk about what the Yale model areas.
David Swenson in the Yale group endowment up have decided that -- twenty years ago that they couldn't.
Go out in select alternative investment managers.
Who are getting into niche areas of the -- Arbitrage.
Venture capital.
Private equity and by carefully selecting these niche managers.
They could enhance the risk return trade off.
Of the Yale endowment and by working on this model for many years -- They have actually done that they have outperformed they have one of the rare few -- while performed and David Swenson wrote a book about it.
And the book was called pioneering portfolio management which you published in 2000 and became the Bible.
For a lot of institutions -- -- -- and try to do right when is became known as the Yale model.
Except it's all of them have all that that just hasn't worked for people they can read the book -- they want but it's not working -- forty get to what the problem was.
Let's put up the performance of the Yale endowment and how well it has done now if you look at over five years you conceive but.
Over ten years over the past two decades you can see these relatively.
Unbelievable returns.
Look at this more than 10%.
Over the past two decades per -- every ten years actually over the two decades up fourteen point 2%.
So what's the problem with others tried to near -- this.
Well we can all be from -- pulled a gun -- -- everybody can't be above average.
And the problem is you have hundreds if not thousands of institutions of endowments and pension funds public pension funds trying to mimic.
Trying to go ought to find this superior managers the problem is only a handful.
-- really talented.
Committees investment committees at these endowments and at these state pension funds that actually have the talent to be -- to go out and select there.
Managers.
That are going to outperform it gets to the same thing that Jack Bogle was talking about earlier in the show.
Is just very few active managers that can outperform and the same is true in the institutional side.
It all sounds good.
Everyone what would like to outperform everybody has boss that they have to a report to.
The problem is everybody can't be below above average and most people that are below average.
For the same reason that Jack talks about which is the fees the fees on the -- to run an alternative investments are extremely are.
And then that pulls off some of what you've actually made I mean we were just looking at calpers for example the largest.
Up pension funded state of California of course of and their returns are are nowhere near this their tenure returns.
Up -- point 9% mean vaguely respectable but certainly not -- so what are some alternatives Rick if you could give them to our investor viewers right now that.
May get them at least close to what would be better returns.
But ironically again you had John below the line now earlier and -- -- just put it simple portfolio together called the core for portfolio.
Which is for vanguard mutual funds it's the vanguard total US stock market that Jack had talked about the vanguard total bond market that he also mentioned.
The vanguard international in the vanguard REIT fund those four funds a combination of those.
Which is basically 30% in bonds and 70% -- equity mirroring what the endowments are doing.
That outperformed.
More it most of the endowments just that simple model portfolio that any investor any investor could have put together over the last ten years.
It outperformed the average endowment over the last 135.
In ten years.
And so that's what you should dealt.
The curse of the Yale model it's -- the curse of the -- model without curse of attempting to follow these scale model Rick great to see you thank you so much -- The other thing thank you may have under David Swenson the -- Smart for ever -- will be right.
