Endowment Model Not Just for Institutions

Terry Flanagan

The long-term success of the endowment model can be replicated by both institutions and individuals, according to Jeff Sica, chairman and chief investment officer at Circle Squared Alternative Investments, a newly-launched company which provides consulting to wealth management professionals.

Circle Squared aims to bridge the gap between alternative market strategies and the various players in the investment community: investment product managers, independent RIAs, and family offices serving the accredited investing population.

“We are making high quality alternative investments available for financial advisers and their high net worth clients that were only accessible to large institutions,” Sica told Markets Media.

Although university endowments have enough capital to invest directly in alternative assets by purchasing real estate and other physical assets, individuals have typically found limited opportunities available.

In 2010, Sica left Wells Fargo, where he was managing director of investments, to found his own wealth management company, which dealt primarily with family offices, and which had a co-branded real estate private equity fund with Hampshire Properties, a $3 billion private equity real estate firm.

“One of the reasons I had left Wells Fargo was I really wanted to be involved in real estate because of my love for the asset class, and feeling that investors weren’t getting the proper exposure to it,” said Sica.

It was at this time that he became acquainted with the endowment model. “I got to know a gentleman that was heavily involved in the Duke Endowment and the endowment for George Washington University,” he said. “I became very intrigued with the endowment model. It stemmed out of overall dissatisfaction with traditional investments. I started to see that traditional investments started to get more and more similar to each other.”

Although portfolios that follow the endowment model may not outperform the S&P 500 and other benchmarks in the short-term, on average, portfolios using the endowment model generate higher returns in the long run, according to Sica.

Universities’ large capital pools allow them to diversify across many different asset classes and countries. “By investing in alternatives such as real estate, commodities, and private equity, the universities were able to perform well even when the markets suffered greatly during the economic downturn,” said Sica. “Alternatives’ low correlation to the markets provided a hedge against huge portfolio dropdowns during the financial crisis.”

The family offices that Sica worked with were buying long only strategies, but were much more interested in alternative investments. That began a four-year process which led to the formation of Circle Squared Alternative Investments.

“Our typical client is a registered investment adviser or broker dealer,” Sica said. “Most of them are just RIAs that want to educate clients and advisers on alternative investments.”

The suite of investment products will include real estate, private equity, private credit, natural resources, private placement offerings, entertainment and media. Some of the investment offerings will be co-managed with outside teams that Circle Squared has vetted and believes to be “best of breed” investment teams, while others will be managed by the Circle Squared portfolio team.

“We went to a lot of the managers that were only offering through family offices or endowments and foundations, and we scaled a handful of those products,” said Sica. “Some of them are strategies that you might find in the portfolio of an endowment, but you won’t find in too many high-net worth network investors’ portfolios.”

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