Endowment Market Values and Inflows
Market value declines are offset by a significant increase in gifts.
- Overall, the market value of endowments declined around -4%. The largest endowments – which tended to have a higher allocation to private alternatives—experienced smaller drops at -3.8%, while the market value of endowments in smaller cohorts fell more steeply at -9.6%.
- Gifting was strong, with an average 22% increase across institutions from FY21 to FY22. This increase in giving was particularly pronounced for the smallest and largest endowments that responded to the survey.
Scenario analysis is an important tool for equipping trustees and administrators with the right information to navigate uncertainty. Have you recently revisited your fundraising scenarios to evaluate how a decrease in giving might impact the market value of your endowment?
Endowment Spending
Endowments continue to meet spending commitments in an inflationary environment.
- Endowments continued to meet their spending commitments in FY22, likely helped by elevated gifting levels that offset challenging investment performance. As endowment contributions cover a smaller portion of costs and asset values decline, we are likely to see challenges in spending going forward.
- While the majority of endowments do not expect to change their current spending rates in a meaningful way and continue to lean on the long-term approach, with long-term inflation expectations many are evaluating and testing alternatives before re-committing to their policies. With long-term inflation expectations shifting upward for most respondents to this survey, now is a good time to revisit your spending policy. Does your current policy still provide stability and consistency for budgeting purposes?
Investment Returns
Endowments posted negative returns for FY22 during a challenging period for many asset classes.
- Endowments experienced negative investment performance in FY22. Most public asset classes in the endowment universe posted negative returns, but private markets showed more positive returns. Smaller endowments especially felt the impact of this as they are often limited to investing in public markets.
- Due to their easier access to invest in alternatives such as private equity and hedge funds, the largest endowments significantly outperformed the smaller endowments as has been typical in recent years. Overall, endowments had a negative return of -8.0% for FY22, impacted by central bank tightening as an effort to temper inflation and major geopolitical disruptions.
Asset Allocation & Debt
Larger endowment asset allocations continue to heavily feature private equity, venture capital, and real assets compared to smaller peers.
- Smaller endowments’ outsized U.S. public equity exposure points to a greater reliance on traditional asset classes, as well as a potential home-country bias. Smaller endowments typically have less access to private markets, allocating less than 1% to private equity and venture capital in FY22, and look to public markets as a primary driver of returns.
- Smaller endowments reported greater exposure to fixed income, suggesting a focus on high-grade bonds to balance equity market volatility in their portfolios. Investment in real assets increased across endowments of all sizes, likely due to the strength of the sector compared to public markets.
- Many institutions increased their long-term debt. As approval for institutional borrowing is a long process, this is likely debt that was initiated in early FY22, potentially the last opportunity in a while for issuing new debt.
Responsible Investing
Interest in responsible investing (RI) continues to grow, with roughly 30% of institutions adopting RI policies across multiple asset classes.
- RI continues to gain popularity and grow in sophistication. As definitions standardize and regulators provide clarity, we expect continued momentum in the adoption of RI strategies.
- Impact investing is also seeing growth. Endowments and institutions engage in impact investing to achieve direct, measurable environmental and social outcomes with their capital. An estimated $1.2 trillion in assets were invested in impact strategies around the globe in 2022.
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