Earlier this year, NACUBO released its 50th annual Study of Endowments. Featuring responses from 668 higher education institutions, this study provided updates on asset allocation, fundraising, distribution strategy and investment governance for endowments ranging in size from under $50 million to over $5 billion in assets.

Summary of study results

After posting an average return of -8.0% in FY22, surveyed endowments reported an average return of 7.7% in FY23. These positive returns led to an average increase of 2.7% in total endowment values after netting out spending. 

  • Smaller endowments benefited from greater exposure to publicly traded equities. Strong public equity market returns in FY23, combined with the higher allocation to public equities that smaller endowments reported having (endowments with assets under $50 million had an approximate 60% allocation to public equities, whereas those with assets between $251-500 million had an approximate 45% allocation), left such organizations better positioned to benefit from the performance turnaround. Endowments with over $1 billion in assets, which had public equity allocations from 23% to 36%, experienced a lag in returns.
  • While 1-year returns for larger endowments were negatively impacted by greater exposure to alternative investment, alternatives exposure benefited such portfolio alternatives over the long term. Endowments with more than $5 billion in assets allocated 32% of their portfolios to private equity (17%) and venture capital (15%) in FY23, approximately 10 times the allocation of endowments under $50 million (2.9%). For the largest endowments (those with over $5 billion in assets), venture capital posted returns of -9.5% and private equity returned 3.1%.

While endowments under $50 million outperformed endowments over $5 billion by 700 basis points, larger endowments still outperformed over the long term.

Three key takeaways

For higher education leaders and trustees, we highlight three key questions that this study can help answer.

  1. As higher education institutions nationwide adjust to post-pandemic fundraising realities, how are new gifts contributing to endowment growth? 

Fundraising retains importance for endowment growth.

Endowments rely on two primary avenues for growth: investment returns and new gifts. After a banner year for giving in FY22, endowments across nearly all size categories reported declines in new gifts in FY23, with pronounced drops among endowments under $50 million (-24%) and from $251-$500 million (-22%). Total new gifts to endowments came in at $13.3 billion, compared to $14.9 billion last year. 

Figure  1: Change in New Gifts to the Endowment, FY22 to FY23 

View accessible version of this chart.
Questions for discussion:
  • How did new gifts to your endowment compare to peers? Were there any trends in gift-use?
  • How are anticipated inflows this upcoming year impacting your distribution strategy?

2. How did asset allocation impact endowment performance, and what are some of the primary considerations for endowments considering making a change?

Alternatives continue to boost long-term returns for larger endowments

Asset allocation is widely recognized as the primary driver of investment returns. Larger endowments had greater allocations to alternative strategies, resulting in relative underperformance this year, with a 2.8% average return for endowments over $5 billion compared to 9.8% for endowments under $50 million. However, median 10-year returns for endowments above $5 billion were 9.4%, compared to a median of 6.4% for endowments under $50 million.

Figure 2: Endowment Asset Allocation, FY23

Source: NACUBO

View accessible version of this chart.

Questions for discussion:
  • How is your endowment currently leveraging private strategies in the context of your overall return targets? Do you anticipate shifting your allocations?
  • On average, endowments fund 11% of higher education institution operating budgets, which can serve as a limiting factor for taking on greater illiquidity within the portfolio. How would increasing illiquidity impact your ability to provide ongoing budgetary support?
3. What are the top governance considerations for investment committees and boards around endowment management today?
Increased focus on strategic oversight under outsourced models for midsize endowments. 
Investment committees and boards are leveraging outsourced chief investment officer (OCIO) approaches to investment management. In FY23, 44% of institutions leveraged OCIO, largely flat from the prior two years at 46% in FY22 and 43% in FY21. The highest rates of OCIO usage were found in institutions with endowments between $101-$250 million (60%), followed by those with less than $50 million in assets (58.5%).
By outsourcing day-to-day operational decisions, including manager selection and portfolio rebalancing, investment committees have more time to focus on policy decisions. The two policy decisions most frequently overseen by institutions were asset allocation and the investment policy statement, while an OCIO/consultant approach tended to cover capital markets research.

Figure 3: Primary Responsibility for Day-to-Day Management: Asset Allocation, FY23

Source: NACUBO
View accessible version of this chart.
Questions for discussion:
Most institutions are leveraging some form of external and/or board support to develop asset allocation guidelines. What is your current process for developing your asset allocation and selecting managers?
How does your current investment policy statement assign responsibility for the different aspects of governance to the committee and your OCIO/consultant?

Let's Talk

Our solutions can be tailored to meet your unique needs. For more information, visit pnc.com/nonprofits.

Accessible Version of Charts

  Under $50M $51M-$100M $101M-$250M $251M-$500M $501M-$1B $1B-$5B Over $5B  
FY23         140,303        308,390   754,562      839,518   1,294,916   5,193,325   4,817,623   13,348,637
FY22         185,693        325,886   859,947   1,081,313   1,588,043   6,357,795   4,493,315   14,891,992
1 Year Change -24.4% -5.4% -12.3% -22.4% -18.5% -18.3% 7.2% -10.4%
  All Institutions Under $50M $51M-$100M $101M-$250M $251M-$500M $501M-$1B $1B-$5B Over $5B
Publicly traded equities 30.1% 60.1% 55.3% 51.0% 44.9% 43.7% 35.6% 23.2%
Fixed income 11.0% 25.9% 24.1% 19.5% 15.6% 16.0% 12.4% 8.6%
Alternative strategies 45.1% 8.0% 12.9% 21.2% 27.1% 30.9% 41.8% 51.7%
Real assets 11.2% 4.4% 5.6% 6.7% 8.1% 8.5% 9.6% 12.9%
Other assets 2.60% 1.6% 2.1% 1.7% 4.3% 0.9% 0.6% 3.7%
Total 100.00% 100.00% 100.00% 100.10% 100.00% 100.00% 100.00% 100.10%

Chart 3: Primary Responsibility for Day-to-Day Management: Asset Allocation, FY

  All Institutions Under $50M $51M-$100M $101M-$250M $251M-$500M $501M-$1B $1B-$5B Over $5B
Internal CIO 11.5% 0.0% 3.7% 1.3% 1.0% 12.0% 40.6% 82.6%
Investment Committee/Board of Trustees 50.5% 49.0% 44.9% 54.0% 57.6% 58.7% 47.9% 13.0%
Consultant/OCIO 37.6% 51.0% 50.5% 44.0% 41.4% 29.3% 11.5% 0.0%