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Market Update

Unexceptional Endowment Performance

Richard M. Ennis questions the myth of endowment exceptionalism in his study of 41 large US endowments (2009-2023). Despite claims of structural advantages, he finds a 0.9% annual underperformance, with 12 out of 15 years trailing a customized benchmark.

Richard M. Ennis looked into the realized performance of Endowments (“Unexceptional Endowment Performance”). Conventional wisdom has it that the investment offices of leading universities are exceptional in the realm of institutional investing. Siegel (2021), for example, provides a fulsome account of what he sees as their competitive advantages. He concludes, “Endowment funds have...structural advantages...that should allow them to earn above-market risk-adjusted returns in the long run.” Is endowment exceptionalism real? Is it myth? A little of both? Ennis examine the performance of a sample of 41 large US endowments over the 15 fiscal years, 2009 -2023. First, he analyzes a composite (equalweighted average) of their returns, and then he analyzes individual fund returns. In both cases, he creates customized benchmarks using quadratic programming, a technique that statistically fits broad market indexes to the subject return series to form a hybrid index. The market indexes are Russell 3000 stocks, MSCI ACWI ex-US stocks (hedged) and Bloomberg Barclays US Aggregate bonds. The resulting benchmark weights for the composite are 61%, 22% and 17%, respectively. No combination of broad market indexes has a better statistical fit with the subject return series.




The table compares composite returns and those of the benchmark. The difference between the two is excess return. Annualized excess return is -0.9% for the 15 years. For the first 12 years, excess return averages about -1.7% per year within a narrow range. The 2021 return reflects a sharp gain for venture capital, which didn’t last long. The composite returns of 2022 and 2023 exhibit return smoothing caused by lags in reporting net asset values of private assets. Notwithstanding the return smoothing, which muddies the waters in the latter years, the composite registered a cumulative loss relative to benchmark of 13% for the study period and underperformance in 12 of 15 years.




Published by

Armin Vogel

October 14, 2024

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