portfolio construction discussion - family office

hey all, 

I've taken on directorship at a small family office (between $500M and 1B). It's just me and the principle. 50% of the portfolio was in real estate, but was sold for cash at the peak of the market. He will redeploy into properties at distressed valuations over the next few years. The remaining 50% has been held in hedge funds and PE funds.  So allocation is: 

50% - real estate

30% - hedge fund

20% - PE funds

I am trying to understand what the potential re-allocation strategies might be in order to move more towards an endowment-type model?  This seems like it's overly skewed towards alternatives, and in particular is heavily weighted towards HFs which I'm not sure makes sense. How can I learn more about portfolio design?  Read the Swenson book already, but that's just starting point. 

  • Yale’s 2021 target portfolio is:
    • Hedge funds: 23.5%
    • VC/growth: 23.5%
    • PE/LBOs: 17.5%
    • Foreign equity: 11.75%
    • Bonds & cash: 7.5%
    • Natural resources: 4.5%
    • US equity: 2.25%

Clearly Yale loves its alternative investments, and has a surprising weighting in favor of VC, and a surprisingly light weighting for US equities.  Ideas, thoughts? 

Congrats! Nice

1st of all, why are you trying to move towards an endowment-type model? Aren't endowments set up as perpetuities

Most Helpful

I work for a family office where we have a multi asset class strategy although not a strict endowment approach. I also know others who follow Swensen religiously. Traditionally, as you know, the asset class mix is an output of your mean variance optimisation model, which is a function of your target returns and assumptions about asset classes. Whilst we don't follow this approach, it's still a function of our target returns, liquidity requirements, circle of competence, etc, not an input. So I'd suggest starting with working on the investment philosophy with the principal and then come back to the asset class mix which is a strategy, part of your implementation like team, directs Vs funds, etc

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