Investments made by large university endowments and foundations outperformed those made by smaller ones, buoyed by access to top-tier alternative investment funds and better manager selection.
Endowments and foundations with more than $1 billion in assets returned 13.8% for the year ended June 30, vs. 9.3% for the average fund, a survey from the National Association of College and University Business Officers shows. The big funds also outperformed broad market indexes by two percentage points.
Endowments and foundations with $500 million to less than $1 billion in assets returned an average of 11.3%; those with less than $500 million returned 9.6%, according to Washington-based NACUBO.
"The rich are getting richer," said John Griswold, executive director of the Commonfund Institute, Wilton, Conn. Commonfund's recent report on the investment performance of university endowments reported similar results — 9.6% for the average fund for the year ended June 30.
"Not only do the largest university endowments have larger allocations to alternatives, early on they were able to get into alternative investment funds that have limited access," said Mr. Griswold. "Now many are reaping the rewards of being early."
On average, university endowments with at least $1 billion in assets had 34.4% of their assets invested in alternatives, up from 31.2% a year earlier, according to the NACUBO survey. The average alternatives allocation for the big funds was 21.7% hedge funds, 5.7% private equity, 3.6% venture capital and 3.4% natural resources.
In contrast, those with between $100 million and $500 million in assets had a significantly smaller portion — 16%, up from 14.1% a year earlier — allocated to alternatives, according to NACUBO.
"Your exposure to alternatives and the alternative managers you use now have a major, major impact on performance," said Louis Morrell, vice president of investments and treasurer of the $907 million endowment at Wake Forest University in Winston-Salem, N.C. "It's become the differentiator."