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Introduction to Lyon Bern’s Endowment-Style Investing Approach

Updated: Nov 8, 2023


dispositive and pen over an investment graph

History of the Endowment-Style Investing

The origins of Endowment-Style Investing trace back to 1952 when Nobel Laureate Harry Markowitz introduced Modern Portfolio Theory (MPT), advocating for asset diversification to maximize risk-adjusted returns. This theory was adopted by prestigious university endowment funds like Harvard and Yale. The significance of diversification was further corroborated in 1986 by Gary Brinson, Randolph Hood, and Gilbert Beebower through their study on 91 large U.S. pension funds, demonstrating that strategic asset allocation accounted for over 90% of superior investment performance. Influenced by these findings, large universities, notably Yale, reallocated capital from traditional assets like equities and bonds to alternative investments like private equity and hedge funds, marking a shift towards Endowment-Style Investing. Since implementing the endowment-style investing, David Swensen, Yale’s endowment fund’s Chief Investment Officer, has been able to achieve net returns exceeding 12% per annum since the mid 1980’s.


Diversification:

Spreading investments across a variety of asset classes to

manage risk and enhance potential returns.

Long-term Focus:

Designed for long-term capital growth and income generation

to support the institution’s objectives.

Alternative Investments:

Significant allocation to alternative and iliquid assets like private

equity, hedge funds, and real estate.

Capital Preservation:

Aiming to preserve the initial capital while growing the fund over

time.

Inflation Hedging:

Including assets that can act as a buffer against inflation and

market volatility.

Active Management:

Often involves active management and the use of top-tier fund

managers to manage different asset classes.

Performance Targeting:

Targeting a specific rate of return to support both current

spending needs and future growth.


Lyon Bern LLC Endowment Investing Strategy Implementation


LB Strategic Income & Growth Fund (SIGF): A Beacon of Steady Growth

Inspired by the endowment model, the LB Strategic Income & Growth Fund is tailored to minimize exposure to single-asset volatility by diversifying across various minimally-correlated alternative asset classes. Our objective is clear—capital preservation with a vision for consistent, long-term returns.


Strategic Asset Allocation and Manager Selection

The core of our allocation strategy lies in meticulous asset distribution amongst top-tier alternative investment managers. This not only fosters a robust portfolio construction but also positions the fund to harness both steady income streams and growth opportunities, delivering a balanced approach for a prosperous financial future.


Real Asset Diversification

A significant aspect the Endowment-Style diversification is achieved by incorporating real assets, primarily through direct investments in the real estate sector. This strategy, enhanced by our partnerships with PENTAS Homes LLC and Private Equity Solutions LLC, aims at capital preservation and potential growth amidst market volatilities. PENTAS Homes, specializing in different Private Equity Real Estate investment alternatives, enables us to invest in high quality, senior-secured collateralized real estate opportunities, providing a hedge against inflation and less correlation to traditional market downturns. Concurrently, Private Equity Solutions LLC bolsters our private equity alternative income fund, aligning with the endowment style philosophy of diversified, long-term investing. The amalgamation of direct real estate assets, private equity, and private credit offerings through these strategic partnerships amplifies the essence of the endowment model. It underscores our commitment to offering a resilient, diversified portfolio that seeks to deliver consistent, long-term returns to our clients. This integrated approach, melding traditional endowment tenets with innovative real asset-driven strategies, epitomizes a fortified investment landscape resonating with both capital preservation and enduring growth.


A Legacy of Proven Performance

The success of the endowment-style portfolio can be appreciated by analyzing Yale’s endowment return over the years.

10-year return: 10.9% per annum as of June 30, 2023, surpassing the average 10-year return for college and university endowments by an estimated 3.0% per annum.

20-year return: 10.9% per annum as of June 30, 2023, outperforming the average 20-year return for college and university endowments by an estimated 3.0% per annum1.


Conclusion: Lyon Bern’s Endowment-Style Portfolio


The portfolio comprises diversified fund allocations including private equity, blue-chip equities, absolute return strategies, fixed income, direct real estate investments, and cash alternatives. Through stress testing, the portfolio demonstrates resilience across various market scenarios including bear markets, financial crises, bull markets, interest rate hikes, and inflationary crashes, with relatively lower estimated losses compared to the S&P

500 and Aggregate Bond Index.


The portfolio statistics from Oct 03, 2022, to Oct 31, 2023, depict a favorable performance of the Sample Proposed Portfolio in comparison to the SPDR® S&P 500 ETF. With a lower Beta and Standard Deviation, the proposed portfolio exhibits lesser volatility. The higher RÇ values indicate a strong correlation with the benchmark. The portfolio also outperforms in terms of the Sharpe Ratio, reflecting better risk-adjusted returns. Additionally, it has a lower Draw Down percentage indicating lesser decline in value, and a higher Total Return, showcasing its potential for better profitability and risk management over the observed period.


investment strategy pie graph

​Stress Free Equity Portfolio

25%

​LB Strategic Income & Gowth Fund

20%

Modern Fixed Income Portfolio

20%

Private Equity Real Estate Alternatives

20%

Defined Structured Strategies

10%

Cash Alternatives

5%




At Lyon Bern LLC, we are not just financial advisers but custodians of trust and architects of financial well-being. Our ethos is driven by fiduciary excellence—placing your financial interests at the forefront of every decision made. By marrying advanced financial planning tools with innovative strategies, we bring sophisticated investment solutions within the grasp of our clients. Our blend of technology and expertise offers a consolidated view of your financial landscape, ensuring real-time monitoring of net worth along with a secure vault for all vital documents.


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