Endowment assets are expected to grow by 7.9% annually over the next five years, the highest expected growth rate of any type of institutional investor, according to latest Cerulli Edge-U.S. Institutional Edition report issued Aug. 27 by research and consulting firm Cerulli Associates.
By comparison with other institutional investors, public and corporate defined benefit plans are expected to grow 4.7% and 2.2%, respectively, over that period.
However, for traditional asset managers to capture this growth in the endowment assets, they will need to be “highly targeted” in their approach and offer the “right product mix” in order to win mandates,” Cerulli said in the report.
The large endowments — those with more than $1 billion in assets — represent the best such opportunity for traditional asset managers, Cerulli said.
While large endowments account for only 4.5% of total number of endowments in the U.S., they collectively have about 78% of the assets among endowments.
Moreover, according to Cerulli, large endowments have relatively sizable allocations to U.S. equities (8.8%) and non-U.S. equities (9.3%), as well as to fixed income (9.5%). In addition, about 35% of endowments expect to increase their allocations to developed markets non-U.S. equity and U.S. investment-grade fixed-income strategies over the next 24 months.
Traditional asset managers may also seek out outsourced chief investment officer providers to capture these endowment assets, Cerulli said. Almost one-half of endowments (44%) used an OCIO provider in 2023 — and that figure has remained relatively stable since 2020.
“The growth in endowment assets can be intriguing for traditional managers looking to expand their institutional footprint,” said Christopher Swansey, associate director-institutional at Cerulli, in a news release issued in tandem with the report. “However, managers will have to overcome several challenges to make headway, including increased demand for alternative investments and establishing relationships with hard-to-reach OCIO providers.”
Swansey added: “While a sizable share of assets is concentrated among the largest endowments, asset managers still can effectively grow endowment asset market share with the right approach to product development and channel distribution.”
