How are Endowments Posting the Eye Popping Returns

If you haven’t seen some of these Endowment returns over the past “year” being reported recently… take note:

Here’s the InsideHigherED website with some more data:

College and university endowments posted their strongest annual performance in 35 years, according to new data from Wilshire Trust Universe Comparison Service reported by Bloomberg.

The median return before fees was 27 percent in the 2021 fiscal year, which ended on June 30. By comparison, U.S. college and university endowments saw a 2.6 percent median return in the fiscal year 2020 and a 6 percent median return in the fiscal year 2019. College endowments of at least $500 million — of which  about 200 — reported a median return of 34 percent in fiscal 2021, higher than the overall average.

What’s happening here? Well, more than anything, this particular 12 months was just a great comp and period for risk.The fiscal year ended June 30, 2021, is capturing the runup in nearly everything off of the Covid sell-off, so there’s not much magic going on here. See us asking @choffstein and @RodGordilloP about the ‘everything rally’ on this recent podcast,  and view just what this has looked like via ycharts below, with most everything these endowments invest in up between 30% and 55% over that time period.


Just a simple average across the assets shown above equals 43%. So what exactly are the endowments invested in? Almost the exact same stuff.

Here’s the dollar-weighted breakdown of the percent allocation to each asset class from the 2020 NACUBO-TIAA Study of Endowments, Interestingly, that data also shows that the smaller the endowment, the larger the allocation to equities and U.S. equities in particular (likely because they are priced out of some Private Equity investment minimums). They are 56% in stocks, and another 20% in hedge funds (which they call ‘marketable alternatives’ in the study), which no doubt included a healthy amount of L/S and 130/30 type funds which have a good deal of equity themselves. So maybe 60% to 70% in equities – (with 23% of that in private equity and venture, which is essentially levered equity). Whoa!


The real trick here is probably not what they are invested in and more what they stayed invested in when staring down a global pandemic. That’s no small trick, to be sure. But a 100+yr investment horizon sure helps, where you can wait out years-long bear markets, much less the months-long one during Covid. However, the end reading from our chair is to make no mistake – the endowment world is cheering on a strong economy and rising stock markets just like the rest of the world. They are trying to win with Offenes, as our friends at Mutiny Funds would say.

Which begs the question… Where is the defense? Are they counting on the fixed income bucket to have a flight to quality bid? Are these endowments too big or too long-term to have a meaningful allocation to some defensive strategy such as tail risk? Is it buried within that 20% ‘marketable alternatives’ bucket? Is it so out of the money and protective of just the worst of the worst type sell-offs that they only need a small <5% allocation to make it work?

Good questions all… But for now – enjoy the ride endowments!

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