%0 Journal Article %A Richard M. Ennis %T Practical Applications of Failure of the Endowment Model %D 2022 %R 10.3905/pa.9.3.463 %J Practical Applications %P 1-4 %V 9 %N 3 %X In Failure of the Endowment Model, which appeared in The Journal of Portfolio Management special 2021 issue on investment models, Richard Ennis, retired chairman of EnnisKnupp, provides an analysis of the endowment model used by numerous colleges and institutions across the United States. He argues that most institutional investors would be better served by managing their funds passively rather than actively.Most large institutions in the United States have adopted an endowment model investment strategy that includes a number of forms of alternative investment, including leveraged buyouts, venture capital, private-market real estate, and more. Although these alternative investments proved highly profitable for institutions from 1994 through 2008, more recently the endowment model has failed to provide superior risk-adjusted performance. Ennis attributes this failure to several factors, including the lack of diversification benefits and alpha contributions from alternative investments, the high cost of active investment, and the difficulty of selecting multiple high-performing active managers. Ennis concludes by suggesting that institutional funds should adopt large-scale, low-cost passive investing in the configuration that best corresponds to their risk tolerance and other goals. %U https://pa.pm-research.com/content/iijpracapp/9/3/1.11.full.pdf