Endowments have tended to outperform most institutions over the last 20-25 years, including 2008. How they do it has been the subject of many books, including several by David Swenson, the CIO at Yale. Most endowments incorporate significant exposure to alternatives such as long/short strategies, arbitrage, futures, real estate, timber and private equity. Their objective is to manage downside risk while also providing an absolute total return of approximately 10% per year.
I argue in the attached paper, borrowing from a recent book "The Ivy Portfolio" by Mebane Faber, that endowment like returns can be generated by individual investors. The challenge is for them to view their portfolio as an endowment and accept the concept of inter-generational equity. Inter-generational equity means that the investor treats the next generation as they would themselves and build a portfolio that is expected to outlast the initial investor.
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The portfolio isn't for all investors - the return objective might be considered too low for the truly risk aggressive and might not be high enough to meet the income needs of some investors. However, the majoriy of investors can consider this portfolio or a variant for themselves. Risk management should be a core consideration for everyone. For most of the last 15 years it wasn't, but that appears to be changing. As investors realize that supposed 20 year events are actually ocurring every 7 to 8 years they are becoming more concious of managing downside risks in their portfolio and are willing to reduce the upside to "keep what they have".
