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Find Your Endowment's Edge: Advantage, Return and Passion
Adapted for endowment and foundation readers from the portfolio chapter of How to Start a Family Office by Richard C. Wilson.
Families just starting their office often ask me where they should focus. I point them to the classic three-circle hedgehog idea from business books, and add one more layer.
The three circles
- Advantage. What in your background, network or location gives you a real edge?
- Return. Where can you get the most back for your money and time?
- Passion. What do you actually care about?
If you only say yes to things that meet all three, you tend to make better decisions.
The extra layer
I also ask where future demand will be highest and competition lowest today. When two options score well on all three circles, that one breaks the tie.
Applying it to an endowment
- Advantage. Faculty expertise, alumni networks, a home region, a research park.
- Return. Where does your size or access give you better terms or deal flow?
- Passion. Your mission. The things the board and donors care about.
The trust curve test
I have also seen that deals close easier, and with more conviction, the higher you are on three trust curves. How well you know the team. How well you know the industry. How close you are to the asset. If you are high on all three, you can invest with conviction. If you are at zero on all three, you are probably wasting your time.
A quick exercise
Ask each committee member to write down one area where the institution knows more than most investors. Compare the lists. The overlaps are where to look first.
Use it as a filter, not a portfolio
This isn't a reason to put the whole endowment in one sector. Broad diversification still does most of the work. Use the edge test to choose where to go deeper with co-investments, specialist managers or local deals.
Frequently asked questions
Is mission alignment the same as passion?
Close. Your mission is usually the clearest version of what the institution cares about.
Should faculty experts weigh in?
They can add insight. Manage conflicts of interest with care.
Does this replace an investment policy?
No. It helps shape the parts of the policy where you allow concentration.
Sources
- How to Start a Family Office, portfolio chapter, Richard C. Wilson .
