Key Takeaways
- • Public equities drove endowment performance in fiscal year 2023, with the average return for university endowments exceeding 7.7%, while six of 62 endowments with $1 billion+ in assets posted negative returns due to heavy alternative investment allocations.
- • Six large university endowments—University of North Carolina (−0.4%), Duke (−1.0%), Princeton (−1.7%), Vanderbilt (−2.0%), Washington University St. Louis (−2.3%), and MIT (−2.9%)—underperformed peers, united by their high concentration in alternative investments that lagged other asset classes in 2023.
- • U.C. San Diego Foundation outperformed all university endowment peers by maintaining an equity-heavy portfolio rather than concentrating in alternatives, signaling a structural shift in optimal endowment positioning.
- • Private equity underperformance in 2023 was the primary drag on diversified endowment returns, particularly for institutions with 35–40% allocations to private equity and venture capital.
- • Endowments with balanced or public equity-tilted allocations benefited from resurgent public markets, with strong performance driven by broad equity market gains and AI-related enthusiasm in large-cap equities.
Summary
University endowments experienced broadly positive returns in fiscal year 2023, with the average endowment return reaching 7.7%, according to tracking by the National Association of College and University Business Officers and analysis from NEPC. However, performance diverged sharply based on asset allocation philosophy, with six of the 62 largest endowments (those holding more than $1 billion in assets) posting negative returns. This divergence reflected a fundamental performance gap between public equities, which drove returns, and alternative investments, particularly private equity, which underperformed across the endowment universe.
The six endowments recording losses in fiscal 2023 were University of North Carolina (−0.4%), Duke University (−1.0%), Princeton University (−1.7%), Vanderbilt University (−2.0%), Washington University St. Louis (−2.3%), and MIT (−2.9%). Despite their elite status and sophisticated investment management, these institutions shared a common structural characteristic: exceptionally high allocations to alternative investments. Private equity represented a significant portion of these allocations—with leading universities maintaining 35–40% positions in private equity and venture capital—and the underperformance of alternative asset classes in 2023 directly translated into negative absolute returns for these diversified portfolios.
In sharp contrast, the U.C. San Diego Foundation outperformed all university endowment peers by maintaining a markedly higher allocation to public equities. This positioning allowed the foundation to capture upside from resurgent equity markets, which benefited from broad market strength and enthusiasm around artificial intelligence driven by large-cap technology stocks. The divergence between U.C. San Diego and the underperforming peers illustrates a critical 2023 market dynamic: public equities significantly outpaced alternative investments, rewarding concentration over diversification during the year.
The 2023 endowment performance data carries implications for institutional asset allocation strategy. While alternative investments have historically provided diversification and return enhancement, fiscal year 2023 demonstrated that concentrated positioning in alternatives—even at elite institutions with substantial resources and expertise—can result in absolute losses during periods when public markets outperform. Endowments seeking to optimize returns in equity-driven market environments face a tension between traditional diversification principles and tactical positioning toward higher-performing asset classes.
The six endowments recording losses in fiscal 2023 were University of North Carolina (−0.4%), Duke University (−1.0%), Princeton University (−1.7%), Vanderbilt University (−2.0%), Washington University St. Louis (−2.3%), and MIT (−2.9%). Despite their elite status and sophisticated investment management, these institutions shared a common structural characteristic: exceptionally high allocations to alternative investments. Private equity represented a significant portion of these allocations—with leading universities maintaining 35–40% positions in private equity and venture capital—and the underperformance of alternative asset classes in 2023 directly translated into negative absolute returns for these diversified portfolios.
In sharp contrast, the U.C. San Diego Foundation outperformed all university endowment peers by maintaining a markedly higher allocation to public equities. This positioning allowed the foundation to capture upside from resurgent equity markets, which benefited from broad market strength and enthusiasm around artificial intelligence driven by large-cap technology stocks. The divergence between U.C. San Diego and the underperforming peers illustrates a critical 2023 market dynamic: public equities significantly outpaced alternative investments, rewarding concentration over diversification during the year.
The 2023 endowment performance data carries implications for institutional asset allocation strategy. While alternative investments have historically provided diversification and return enhancement, fiscal year 2023 demonstrated that concentrated positioning in alternatives—even at elite institutions with substantial resources and expertise—can result in absolute losses during periods when public markets outperform. Endowments seeking to optimize returns in equity-driven market environments face a tension between traditional diversification principles and tactical positioning toward higher-performing asset classes.
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