Large Endowments Widen Their Lead Over Smaller Peers

The performance gap between the largest and the smallest funds grew more than 13 percentage points last year, according to a report from NACUBO and TIAA.

Illustration by II

Illustration by II

University endowments and foundations saw strong investment returns in 2021, but the performance gap, or dispersion, between the endowments at large and small institutions continued to grow.

Released on Friday, the National Association of College and University Business Officers (NACUBO) and TIAA 2021 endowment study included the performance of 720 institutions representing $821 billion in endowment assets for the fiscal year from July 1, 2020 to June 30, 2021.

According to the study, the largest endowments were the highest-performing cohort, with an average return of 37.3 percent, while schools with the smallest endowments were the weakest, with an average return of 23.9 percent. “Even though we’ve had a very strong 2021 in terms of performance returns, we also saw a considerable dispersion and variance across the different cohorts in terms of performance,” said Ivy Flores, managing director at Nuveen, a TIAA company.

Endowments and foundations saw dramatically higher average returns over the last fiscal year. In 2021, the average annual net investment rate of return for U.S. college and university endowments and foundations was 30.6 percent, a sharp increase from 2020’s 1.8 percent and even 2019’s 5.3 percent. But while endowments of all sizes saw increases of over 20 percent in 2021, the difference in returns between large and small institutions widened.

“After relatively tight dispersion in 2020, when the small endowments performed closely in line with the largest, the gap between these two cohorts expanded more than 13 percentage points in 2021,” said Doug Chittenden, head of client relations at TIAA. In 2019, the gap was even smaller — institutions with endowments of over $1 billion generated an average net investment return of 14.2 percent, while those with endowments under $25 million saw an average return of 10.8 percent.


As an example, large university endowments at the top of the report’s list, such as those at Harvard, Stanford, the University of Texas System, Yale, and Princeton, generated year-over-year value increases of 27.9 percent, 30.6 percent, 34.3 percent, 35.5 percent, and 41.9 percent, respectively. And in certain instances, the year-over-year value increases were even higher: Washington University’s endowment, which is valued at $13.5 billion, generated a year-over-year return of 60.8 percent.

Meanwhile, smaller institutions also experienced a strong fiscal year, but their growth from 2020 to 2021 wasn’t nearly as high as the year-over-year growth at larger schools. For example, the endowment at Baker College in Flint, Michigan, which is valued at $355 million, saw only an 8.2 percent increase. Baker, of course, could be an outlier; generally speaking, small schools with endowments of less than $25 million, such as the Dakota State University Foundation ($20.1 million) or the Massachusetts College of Liberal Arts Foundation ($18.5 million), largely hovered in the range of 18 to 30 percent year-over-year growth.

Chittenden said the wide dispersion has historically been attributed to the substantial exposure that larger institutions often have to private equity and venture capital, in addition to their access to the best managers. In 2021, endowments with over $1 billion allocated an average of 16.6 percent of their portfolio to private equity and 13.4 percent to private venture capital. In contrast, endowments with under $25 million allocated 0.2 percent to PE and 0.5 percent to VC.

Some schools, such as the University of Pennsylvania and Bowdoin College, can even credit much of their portfolios’ 2021 returns to their asset allocation to PE and VC, as Institutional Investor previously reported. In 2021, Bowdoin weighted its $2.72 billion portfolio with private assets (with an emphasis on VC) and generated a return of 57.4 percent for the fiscal year, while Penn, which since 2005 has increasingly allocated to PE over fixed income, reported a return of 41.1 percent last year. According to the NACUBO-TIAA report, Penn’s endowment is now worth $20.5 billion.

Across all endowment sizes, the interquartile dispersion — that is, the difference between the 25th quartile performers and the 75th quartile performers — was 7.1 percent, almost double the 3.4 percent dispersion in 2020.