The Modular Approach is Often Referred to as the Endowment Model

In the world of asset management, it is widely acknowledged that among institutional investors university endowments in particular tend to enjoy better performance results over time than individuals. The 10-year average annualized return of Yale University's endowment was 17.8% (through June 30, 2007), while Harvard and Stanford each produced similarly impressive returns of 15.0% and 15.1% respectively. All of these endowments greatly outperformed the S&P 500 index total return of 7.1% and according to Dalbar, the average asset-weighted return earned by individual investors over the same period was lower still at only 6.2%.*

These results raise a critical question: Why have these institutional investors produced returns so superior to those generated by individuals? Three elements of the investment approach used by institutions have been the key drivers of their returns over time.

1. Portfolio Construction: Institutional investors generally work with consultants and investment advisors who possess a clear understanding of how to build an investment portfolio to meet their clients' tolerance for risk and their need for return.
2. Ability to Leverage Different Sources of Return: Institutional investors have access to and have utilized many non-traditional investments such as real estate, private equity and hedge strategies. They also understand the risk and return dynamics of these asset classes and how they can be used in a diversified portfolio.
3. Clearly defined Goals: Most institutions know what they want to achieve in terms of rate of return, or goals such as "growth" or "capital Preservation" and the time frame in which they want toachieve it.

*SOURCE: Yale University Office of Public Affairs, Stanford Management Company, Harvard Management Company and Dalbar.

Past performance is no guarantee of future results.

In addition, David Swenson tells us in his book, UNCONVENTIAL SUCCESS, that to a large extent the private investor has the deck stacked against him between excessive fees, conflicts of interest, and the propensity to by high and sell low by chasing yesterdays' performance.