Renowned for their investment strategies, university endowments can help high-net-worth investors and family offices understand the opportunities and risks associated with private assets.
Over the last several weeks, many U.S. universities have released the annual investment results of their endowments for the fiscal year ended June 30, 2024. Reviewing some of the largest endowment funds shows a wide dispersion of short-term (1-year) and long-term (10-year) results. A closer examination of these results shows how different investment strategies are playing out and how allocations to private assets can benefit or detract from overall performance.
The Endowment Model
The “endowment model” was popularized by David Swensen, who was the long-time (1985 – 2021) Chief Investment Officer of Yale University. His approach, widely adopted by the largest endowments, leverages their long-term investment horizons to accept illiquidity in exchange for greater returns and diversification. This philosophy has led to endowments allocating a significant portion of their portfolios to private assets. For example, according to Cambridge Associates, endowments on average allocated 28% of their portfolios to private equity, real estate, and private credit. However, the largest endowments typically allocate a much greater percentage (see table below).
| Investment Performance as of 6/30/24 | |||
| University | 1-Year Return | 10-Year Return | % Private Assets* |
| Harvard | 9.6% | 7.6% | 47% |
| Texas | 8.9% | 7.6% | 47% |
| Yale | 5.7% | 9.5% | 59% |
| Stanford | 8.4% | 8.6% | 59% |
| Princeton | 3.9% | 9.2% | 53% |
| MIT | 8.9% | 10.5% | 52% |
| Penn | 7.1% | 8.7% | 46% |
| Michigan | 8.9% | n/a | 63% |
| California | 11.7% | 8.1% | 40% |
| MEDIAN of 9 Largest | 8.9% | 8.6% | 52% |
| Trad. 70/30 U.S. Portfolio | 13.5% | 6.2% | 0% |
Private Assets Have Contributed to Endowments Long-term Performance
There are some significant differences in performance among the endowments, particularly during the 1-year period. This is likely due more to their different investment strategies rather than asset selection. Examples of this may include over- or under-weighting private assets such as venture capital or international public equities.
Interestingly, all endowments underperformed a traditional 70/30 U.S. equity/fixed income portfolio over 1 year but outperformed it over 10 years. Both results are likely due to endowments having a significant portion of private assets in their portfolios. Although private assets underperformed in the last year or two, they have performed well over the long term, aligning with endowments’ primary focus
For high-net-worth investors and family offices, understanding the endowment model underscores the importance of patience and strategic diversification when investing in private assets.
Steve was formerly the Chief Investment Officer and Head of Private Markets at Manulife Investment Management. In this role, he was responsible for leading global investment teams across a wide range of asset classes, including private equity and credit, real estate, infrastructure, timber, and agriculture. Steve has served as a director of many public and private companies during his career, including two of Manulife’s U.S. SEC-registered investment advisors.
Important Notice: Private Markets Navigator does not provide investment advice, and the information should not be construed as such. Investing in private asset funds is risky, with potential for total loss and long-term liquidity restrictions. Read our full dislaimer.