Only a third of U.S. and Canadian university and college endowments have made high enough returns on their investment portfolios over the past 10 years to support their costs — which generally include operations and administration, student aid, and money needed to conserve capital.
Executive recruiter Charles Skorina, who also tracks the business, said endowments must return 8 percent annually to generate enough investment earnings to cover their costs and only 42 of 119 funds with more than $1 billion in assets have achieved that. The average return for the entire group was 7.7 percent.
Skorina called the 8 percent “a tough nut to crack.” It may get even tougher as endowments face new challenges, including a possible tax hike.
Two Republican members of Congress have cosponsored a bill that would raise the excise tax levied on certain private university endowment profits from 1.4 percent to 21 percent. “Reading between the lines, ‘certain’ in this case likely means all of them,” Skorina said.
He predicted that higher taxes would lead to seismic changes in how endowments are managed. “No more frictionless trading. Buy and hold a la Buffet will become the new endowment normal as schools pursue that elusive 8 percent solution.”
Already many big names fall below the 8 percent benchmark, according to Skorina’s annual endowment report. They include Harvard University, with a 7.8 percent 10-year return, Howard University (7.7 percent), Cornell University (7.7 percent), UTIMCO Endowment (7.6 percent), Columbia University (7.4 percent), Northwestern University (7.3 percent), Tufts University (7.10 percent), UCLA (6.8 percent), University of Chicago (6.7 percent), and UC Berkeley (6.7 percent), among others.
The single institution with an endowment between $500 million and $1 billion that exceeded the magic 8 percent number was Babson College, with a 9.4 percent gain over the past decade.
Skorina blamed the underperformance on the attempt by most endowments to “mimic” the model used by David Swensen at Yale University. Some three decades ago Swenson boldly recommended shrinking public markets holdings and going into alternatives like hedge funds and private equity. While Swensen was “an outlier, a different thinker,” Skorina said, “the master is gone and the world has changed. Today that trail he cut through the wilderness has become a freeway and the endowment model is a very crowded trade.”
Last year Skorina said that “life is sweet” for institutions that had substantial holdings in U.S. stocks. “But for endowments with heavy exposure to alts, particularly private equity, there were challenges.”
The top performer was Michigan State University, with a 15.10 percent gain in fiscal 2024. It has returned 9.3 percent on an annualized basis over the past decade.
The top two performers over the ten-year period were Bowdoin College and Brown University. Bowdoin gained 10.9 percent during the last fiscal year and the same number over the ten-year stretch. Brown was up more than Bowdoin in 2024 — 11.3 percent — and 10.8 percent over ten years.
