“If Everybody Is Thinking Alike, Then Somebody Isn’t Thinking.”

Would George S. Patton say this about Foundations & Endowments who chased the Yale Model?

In the 1970s through the 1990s, private equity and hedge funds were exclusive, operating in fragmented markets with limited capital.

That scarcity, segmentation, and inefficiency created the real “edge” where skilled managers could generate outsized returns, justifying the higher fees and long lockups.

Under David Swensen, the Yale Model leaned into private equity, venture capital, and hedge funds before anyone called it a playbook. Go where markets are less efficient. Back the right managers. Accept illiquidity and get paid for it.

From 1973 to 2002, Yale’s private equity portfolio delivered an annual rate of return of over 31%.

An impressive figure and everyone noticed. Endowments, pension funds, sovereign wealth funds . . . they studied the model and copied portfolio positioning. What had been a differentiated allocation became the default overnight. According to NACUBO, from FY99 to FY08, schools’ allocation to alternatives tripled to 23.6% from 7.5%. The allocation to traditional equities declined to 51.9% from 64.3% and the allocation to fixed income declined to 19.2% from 23.6%. By FY25, institutions with more than $5 billion in assets had 62.5% allocated to alternatives.

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