What if we told you that you could substantially boost your portfolio returns without taking on excessive risk? Although this may sound too good to be true, major institutions figured out the key to doing this a long time ago—and it isn’t what you might assume.
As of 2015, the average equity mutual fund investor earned a 30-year annual return of roughly 3.7%. By contrast, the Yale endowment generated an approximate 13% annual return during that same period of time.
While you may be thinking that the Yale endowment’s superior returns are clearly a product of in-house skill, expertise, and access that retail investors can’t replicate, you’re missing a key part of the story. While all of this is true, a major source of Yale’s success lies in its superior investment strategy. Yale continuously maintains a relatively high allocation to private market investments. Specifically, the endowment currently allocates over 70% of its portfolio to asset classes that are classified as alternative investments.
Unlike retail investors, large institutional investors such as pensions and endowment funds typically allocate a substantial percentage of their holdings to private non-traded investments. Thanks to new technologies, the options for retail investors looking to boost their private market exposure are growing rapidly—and the data to back up why more individuals are seeking out private investments is self-evident.