This study is based on a survey that Cambridge Associates administers annually to our college and university clients. The report that follows summarizes returns, asset allocation, and other investment-related data for 160 institutions for the fiscal year ended June 30, 2023. Included in this year’s report are commentary and exhibits that are spread across five 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 compared to the number 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. Meanwhile, the Institutional Support section contains analyses that highlight how much colleges and universities rely on their endowments to support their annual operating budgets. Also included in this section are exhibits on spending policies, portfolio inflows and outflows, operating funds, and endowment market values relative to outstanding debt.
Finally, this year we have removed the section of our annual report that covers investment office staffing and governance. These lines of questions 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. The survey will take a deep dive into these topics, exploring all facets of investment office resourcing and governance structures.