This study is based on a survey that Cambridge Associates (CA) administers annually to our endowment clients. The report that follows summarizes returns, asset allocation, and other investment-related data for 322 endowed institutions for the fiscal year ended June 30, 2023. Included in this year’s report are commentary and exhibits that are spread across four separate sections.
Fiscal year 2023 was an atypical year performance-wise compared to recent history. On an index basis, public equity markets produced returns that were much higher than what was reported in private investments. As a result, smaller portfolios, which tend to have the highest allocations to public equities, outperformed larger and more diversified portfolios by significant margins. Our Investment Portfolio Returns section highlights performance results for this past fiscal year, as well as longer trailing periods.
When it comes to policy portfolio benchmarks, the use of a public equity index to represent private equity and venture capital (PE/VC) is the most common approach among endowments in this study. Consequently, in a year such as 2023, when public markets broadly outperform private markets, it is tougher for endowments to outperform their benchmarks. Despite the underperformance that most endowments reported this past year, they fared quite well versus their benchmarks over longer trailing periods. Our Investment Policy section touches on this topic and illustrates the most common benchmark components used for other asset classes.
Strong returns from stock markets in developed countries resulted in endowments seeing meaningful increases to their public equity allocations in 2023. However, from a policy perspective, there were more endowments that reported decreases in their long-term targets to public equities than those that reported increases. The Portfolio Asset Allocation section uses data on target asset allocations to lend insights into recent shifts in asset allocations and how endowments might be altering their portfolios heading into the future. This section also highlights how endowments have evolved in investing their portfolios from the early 2000s to today, with a particular focus on the increased allocations to PE/VC over the last couple of decades.
The number of managers that endowments use for their overall portfolio and within specific asset classes can vary widely. Our Investment Manager Structures section explores data on this topic, as well as implementation strategies for traditional assets (i.e., active versus passive management) and alternative assets.
For more information, please see William Prout, “Spending Policies and Practices: Fiscal Year 2022,” Cambridge Associates LLC, March 2023.
Finally, we have removed two sections that historically appeared at the end of this study. Much of the content from the Institutional Support section now resides in our annual Spending Policy Practices report, which provides in-depth peer analysis on spending policies, effective spending rates, and endowment reliance in institutions’ operating budgets. An update with fiscal year 2023 data will be posted later this year. Separately, the content from the Investment Office Staffing and Governance section will be folded into a standalone survey and publication that covers this topic in much more detail. We will be re-launching our biennial Organization and Staffing for Endowment Management survey in summer 2024, which will take a deep dive into these topics, exploring all facets of investment office resourcing and governance structures. If you have questions on our upcoming initiative or would like to secure your invitation to the study, please contact Grant Steele at gsteele@cambridgeassociates.com.