Invest Like University Endowments

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Invest Like University Endowments


Drew F Knowles

Berkeley Square Capital Management, LLC

March 1, 2016


This paper studies the investment returns and asset allocation policies of college and university endowments who share annual performance and asset allocation data with the National Association of College and University Business Officers (NACUBO) annual endowment study. In this paper, we review the performance data and asset allocation policies by the size of the endowment assets as set forth by NACUBO. Further, we investigate how an individual investor could replicate the high risk-adjusted returns based on the asset allocation policies of reporting institutions, including Yale University.

Invest Like University Endowments – Background

“Harvard Management Company’s singular mission is to help ensure that Harvard University has the financial resources to confidently maintain and expand its preeminence in teaching, learning, and research for future generations.”

“A market-leading return of 13.9 percent per annum produced $20.6 billion in relative value added to support Yale’s mission of teaching and research. Sensible long-term investment policies, grounded in a commitment to equities and a belief in diversification, underpin the University’s investment success.”

Endowment investment management has been well researched by many academics and practitioners due to the phenomenal investment success Yale, Harvard and other early adopters of endowment theory have enjoyed. John Maynard Keynes’ endowment management record and strategies have been cited as highly influential by many of today’s practitioners, such as Yale’s Chief Investment Officer, David Swensen. Chambers, Dimson, and Foo study Keynes’ record managing the Cambridge College endowment from 1921 to 1946 and should be read by any interested students of endowment theory. Asset allocation policies have shifted greatly over the years from traditional equity and fixed income portfolios to more robust mixes that include alternative investments such as private equity, hedge funds, and natural resources. Those who currently manage college endowment assets generally allocate more capital to alternative investment strategies than to equities and fixed income. The illiquidity of these portfolios and high fees paid to sub-advisors has come into question more than once.

From 2002 to 2008, endowments reported returns and asset allocation weightings to NACUBO in nine categories: equities, real estate, fixed income, cash, hedge funds, private equity, venture capital, natural resources and other. These nine asset classes span highly liquid markets such as cash to highly illiquid markets such as natural resources or private equity. Since 2009, reporting endowments have supplied information for five asset classes: domestic equities, international equities, fixed income, alternative strategies and cash. Alternative strategies now encompasses anything that is not equity, fixed income, or cash. For continuity with 2002 to 2008 data, we have combined domestic and international equities into one asset class for the 2009 to 2014 time period.

Category Asset Allocation

Since 2002, NACUBO has published the asset allocation mixes for each size category. The time period of our study spans returns from 1988 to 2014, however, we only have access to asset allocation data from 2002 to 2014. The baseline of returns is derived from the following categories, with A being the smallest endowment pool and D the largest:


  • Category A: $25 million and under
  • Category B: Over $25 million to $100 million
  • Category C: Over $100 million to $400 million
  • Category D: Over $400 million


  • Category A: Over $51 million to $100 million
  • Category B: Over $101 million to $500 million
  • Category C: Over $501 million to $1 billion
  • Category D: Over $1 billion



Endowment Investment Pool Performance

NACUBO has been collecting investment pool nominal returns since 1988. (Endowments report performance numbers on a June 30th fiscal year.) Starting in 1988, NACUBO ranked endowment into four categories by investment pool size. Later, NACUBO added a fifth and sixth size category, but for simplicity, we will only study the top four categories by size as described below.

The time period of our study spans returns from 1988 to 2014 and the baseline of returns is derived from the following categories, with A being the smallest endowment pool and D the largest:



For the time period 1988 to 2014, Category D, the largest endowments, outperformed Category A, the smallest endowments, by a huge margin. Category D achieved twice the cumulative return with a much higher return per unit of risk. Although the annualized standard deviation was higher, the compound annual growth rate was significantly higher and more than offset any increase in risk. On the average, Category D achieved this risk-return profile by having a smaller allocation to equities and fixed income, while maintaining a much higher allocation to alternative investments than smaller peers. The data suggests that the increased role of active management due to higher weightings in asset classes that have a larger dispersion of returns adds great benefit for Category D endowments.

See full PDF below.

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