Endowment Oversight in the Ivys

The eight Ivy League endowments averaged 8.3% return in fiscal year 2023-24 (July 1, 2023, to June 30, 2024). Comparable schools like Stanford and MIT returned 8.4% and 8.9% respectively.  In sharp contrast, the S&P 500 gained 23.5% for the same period, almost triple the Ivies.

To make matters worse, universities allocate tens of millions of dollars from their general revenues to their fund managers.  Take Stanford, for example.  Its financial assets are managed by the Stanford Management Company.  For the current 2024/25 fiscal year, the Provost allocated $56.7 million to SMC.  Over the years these allocations have amounted to hundreds of millions.  Its head earns over $5 million a year.  The staff numbers 59 persons, hired to meet the University’s Diversity, Equity, and Inclusion requirements.  Its investments must also satisfy the University’s environmental concerns.

What about long-term comparisons for average annual returns?

Time            SMC        S&P 500

5 years        9.9%         11.3%

10 years     8.6%         15.2%

20 years     9.3%         10.5%

Why the difference?  SMC invests in private equity, real estate, and bonds, with a much smaller share in publicly listed equities.  It must also take DEI and Environmental concerns into account.  Like generals fighting the previous war, fund managers invest on the old model.

Boards of Trustees have oversight on their endowment managers, usually delegated to Committees on Finance and Investment.  Over a third of Stanford Trustees are in the money management business.  One would think that changes ought to be made among endowment fund managers when their budgets of tens of millions of dollars result in returns that pale in performance against the S&P 500 .  After all, every university claims that it has to be responsible stewards of their donors gifts.

Blunting any change is the reality that serving as a Trustee of one of the great universities in the world conveys enormous prestige in the philanthropic world.  What most Trustees want is their name on a building, on one or more endowed professorships, and on research centers and institutes.  At Stanford, for example, a third of all professorships are named (endowed) and most buildings on campus are named.  Barring a financial shock like the 2008-09 Great Recession or a major scandal, Trustees generally leave the management of their universities to their Presidents, Provosts, Deans, and faculties.  The Ivies, Stanford, and MIT are blessed with fabulously wealthy alumni who are likely to donate fresh money every year.