The endowment model, long thought to be superior, has recently come under criticism because of poor returns relative to stock and bond benchmarks in the past decade. The author argues that the long-run prospects for the endowment model are favorable because (1) the model relaxes many of the constraints that keep other types of investors from achieving maximal risk-adjusted return, (2) the model is focused on the very long run, and (3) the current prospects for stocks and bonds, at least in the United States but potentially elsewhere, are problematic. The author concludes that, although it is subject to agency costs such as the temptation to take risk now and allow someone else to deal with the consequences later, the endowment model is sound and can continue to be pursued by skilled investors.
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