Amid growing uncertainty, market volatility, and concerns about inflation, enrollment, and fundraising, more endowments for independent schools are turning to outsourced chief investment officer services.
A recent Commonfund study of 221 private, nonprofit day and boarding schools (pre-K through 12th grade) found that 46 percent now use an OCIO, a 13-percentage-point increase from 33 percent in 2023. Midsized schools with $10 to $50 million in assets saw the largest increase, rising to 59 percent (from 40 percent). For schools with more than $50 million in assets, OCIO usage grew to 43 percent (from 33 percent), while smaller schools (under $10 million) increased to 26 percent (from 15 percent).
Commonfund’s annual study also found that private schools saw strong positive returns for the second year in a row. The average independent school endowment posted a return of 12.3 percent in 2024, up 3.1 percentage points from the 9.2 percent return in 2023.
All returns are reported net of fees. Fiscal year 2024 covers the period from July 1, 2023, to June 30, 2024, and coincides with the budget year of most independent schools.
Also for the second consecutive year, larger endowments did not outperform smaller ones, with endowments under $10 million posting the highest returns at 13.5 percent. (These results align with those of NACUBO and Commonfund’s recently-released study of university endowments.) Endowments with $10 and $50 million in assets reported 12.1 percent annual average returns, while the largest schools with more than $50 million reported an average return of 12 percent.
The trend of larger schools outperforming smaller ones over the longer-term has also reversed, with smaller schools’ three-, five- and 10-year returns all relatively higher in 2024. This shift has occurred as the outperformance of equities over the past two years has benefited smaller institutions that typically have higher allocations to stocks than larger ones.
Private schools made minimal changes to their asset allocations in 2024, including two two-percentage point changes — an increase to domestic equities (to 35 percent) and a decrease to fixed income (to 14 percent). Other asset allocations changes were within one percentage point of the prior years’ levels on average.
How schools allocated to assets depended on their size. On average, large institutions allocated 34 percent to alternatives, compared with 11 percent for those with assets between $10 million to $50 million and 1 percent for those with under $10 million. Commonfund noted that some allocation changes are due to rebalancing, with 69 percent of respondents reporting that they rebalanced in 2024. Some changes may also be due to fluctuations in the value of existing allocations.
In a joint statement about the report, Commonfund Institute’s executive director George Suttles and National Business Officers Association’s president and CEO Jeffrey Shields highlighted that strong returns and improved long-term performance were encouraging signs.
“Despite pressures from markets, inflation, and enrollment, this year’s study shows that long-term endowment gains can serve as an anchor of stability for institutions,” the statement from Suttles and Shields said. “After a few years of big swings up and down, we can rest assured that in the long-term — with 15-year and 20-year returns of 7 to 8 percent — endowment stewards are helping meet the missions of these perpetual institutions.”
