Cammilleri’s father founded Joico Laboratories, a hair-products firm, and sold it in 2001 to Japanese cosmetics giant Shiseido. His parents, now in their 70s, are divorced, and the 34-year-old Cammilleri says his family is now essentially in the wealth management business. By shepherding both parents through the process of hiring wealth advisors to manage their estates, Cammilleri says he learned a great deal.

"My dad grew up in the streets, very poor," says Cammilleri, who, with the help of the family’s attorney, manages his father’s money in a traditional portfolio. "I’ve never come across anyone as conservative as my dad. He doesn’t want to take the time to figure it out; he just wants to hire someone. And he doesn’t like volatility. Lockups and lack of liquidity just scare him. He would be quite happy in all Treasurys."

His mother, who grew up on a farm in South Dakota, allocates 47 percent of her portfolio to alternative investments that include real estate and hedge funds. And therein lies the key differential in building wealth, Cammilleri believes. In the space of four years, his mother’s returns have been significantly higher than his father’s, even though their assets were equal after the divorce. "I find it interesting that my dad was in reality the wealth creator, but now my mom has a lot more than he does, and we’ve only been investing since mid-2003."

For ultrawealthy individuals and families, allocating large percentages of their portfolios to alternatives—illiquid pools of investment like private equity and hedge funds—has been described as the Harvard-Yale approach, because it emulates the extremely successful strategies used by the two universities in managing their endowments. While this strategy has several drawbacks—limited access to funds, tax challenges and illiquidity—it still offers returns that investors find hard to ignore. Gil Orbach, the chief investment officer at Spruce Private Investors—an independent boutique firm in Darien, Conn.—has compared the annualized returns of Harvard and Yale to those of more traditional long-only approaches that invest in diversified stocks, bonds and cash. The 15-year annualized return shows Yale up 17 percent and Harvard up 15.5 percent, while the long-only blend is up only 8.5 percent. "The key message," Orbach says, "is that there is a strong argument for a multiasset approach and a meaningful and significant allocation to alternatives."























Source: Spruce Private Investors

Risks and Returns
According to Orbach, the Harvard-Yale approach to investing is not new. "They happen to be among the best at doing this, and are responsible for refining and systemizing the approach, but [other] top college endowments are also doing it." Orbach adds that many affluent families now have significant allocations to alternatives as well.

But the strategy’s historical returns are not the entire story, as Orbach is quick to point out. "This is not just a return argument, it’s a risk argument," he says. Alternative asset classes are used to diversify and dampen pure market risk. Orbach’s charts show that during particular crisis periods such as October 1987, the summer of 1998 and 2001–2002, all three investment styles lost money, but Harvard’s and Yale’s losses were significantly smaller.