Mar 5, 2024 - Business

The year small endowments won out

Illustration of a graduation cap with a sales tag on the tassel

Illustration: Sarah Grillo/Axios

Small college endowments skew toward public equities over alternatives like venture capital, and it helped them perform better than larger counterparts last year, according to the latest annual NACUBO-TIAA endowment study.

Why it matters: Barriers to accessing venture capital are usually seen as an investment disadvantage — while access as the driver behind the eye-popping returns of larger institutions.

The big picture: Alternative asset classes like venture capital and private equity have historically been the domain of large, multi-billion dollar endowments because they're high-risk and illiquid. Bigger players feel more comfortable making those bets.

  • Smaller endowments, on the other hand, need to tap higher portions of their capital for operational and scholarship purposes. They don't tend to put much of it in those assets.
  • They often also struggle to access these investment opportunities.

By the numbers: Per NACUBO-TIAA data,

  • Average one-year returns for endowments under $50 million: 9.8%.
  • Average one-year returns for endowments over $5 billion: 2.8%.

Yes but: Looking at the 10-year returns, the trend flipped; those smaller than $50 million netted 6.5% while those above $5 billion returned 9.1% on average.

  • Average VC and PE allocations for endowments under $50 million: 0.7% and 2.8%.
  • Average VC and PE allocations for endowments above $5 billion: 13.9% and 19.7%.
  • Average active and passive US equities allocations for endowments under $50 million: 21.6% and 191%.
  • Average active and passive US equities allocations for endowments over $5 billion: 6.2% and 1.7%.

Between the lines: One particular group of schools that benefited from this dynamic last year was Historically Black Colleges and Universities (HBCUs), as they have relatively small endowments.

  • Of the top 10 largest HBCU endowments, nine saw growth (note: Hampton University and Morehouse College did not participate in last year's study).

Yes, but: HBCU endowments, as a group, remain relatively small compared to those of predominantly white institutions.

  • Not one HBCU has at least $1 billion in endowment assets.

The bottom line: The post-ZIRP world is flipping a lot of historical trends upside down — including who are the haves and have-nots of institutions.

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