Investment Wisdom of Top Endowments Are a Myth


“Between 2009 and 2016, college and university endowments underperformed market benchmarks by more than twice as much as other non-profit endowment funds, such as charitable foundations, according to the paper by Georgetown University’s Sandeep Dahiya and New York University professor David Yermack.”  –Institutional Investor



Endowments and foundations have lagged behind a simple 60-40 portfolio of stocks and bonds.

That was the conclusion of an NBER research paper that examined the impact of fund size, location, and affiliation on non-profit investment returns since 2009. Based on the IRS filings of 28,696 endowments and foundations.

-Large college and university endowments performed worst, lagging by whopping 189 basis points a year.

-Smaller endowments / foundations trailed by 93 basis points annually.

-Median annual returns 5.53 percentage points below a 60-40 mix of U.S. equity and Treasury bond indexes

-Majority of the $700 billion asset class do significantly worse than funds in other sectors.

-Perhaps the most amazing data point was among the non-profits, endowments of academically elite Ivy League schools earned “almost exactly zero abnormal return, a result that gives no indication of superior performance.

The one caveat is this was based on 2009-2016 — arguably the recovery from the financial crisis; I suspect this was a singular era that many investors, including the professionals, got totally wrong. How they perform in other eras might be intriguing to learn.

More on this next year . . .





Investment Returns and Distribution Policies of Non-Profit Endowment Funds
by Sandeep Dahiya and David Yermack
NBER Working Paper No. w25323, December 2018

The Worst-Performing Endowments Have These Things in Common
by Amy Whyte
Institutional Investor, December 18, 2018

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