Latest news with #endowments
Bloomberg
4 days ago
- Business
- Bloomberg
Private Equity's Courtship of Retail Investors Irks Pensions, Endowments
Some of the world's biggest investors in private equity are worried they could lose their special status as thousands of retail investors get invited into an asset class that had been reserved for sophisticated clients. Institutions such as pensions and endowments are increasingly concerned their negotiating power may be sapped as private equity funds allocate more money to doctors, lawyers and other everyday customers who pay full freight. Other big-money investors are asking how much of each private equity deal they'll have to share with funds marketed to individuals, leaving less available for themselves.
Bloomberg
04-08-2025
- Business
- Bloomberg
Big College Endowments Post Best Investment Gains Since 2021
US college endowments overseeing $500 million or more posted median returns of 11.5% for the year through June, the best performance since 2021. All endowments including smaller funds gained a median 10.8% before fees during the same period, according to a report Monday from the Wilshire Trust Universe Comparison Service. The firm, which gathers data from institutional investors including pensions and endowments, doesn't name individual colleges.
Reuters
08-07-2025
- Business
- Reuters
Breakingviews - The new Yale model is both obvious and hidden
NEW YORK, July 8 (Reuters Breakingviews) - The Ivy League's secret sauce is curdling. Elite university endowments that once boasted market-beating returns are now paying premium fees for pedestrian results. It couldn't come at a worse time, as the Trump administration slashes research grants and pushes tax changes that will hit campus coffers. The $838 billion collegiate investment machine faces a stark choice: embrace the public markets they once scorned, or venture into the wilds of still-nascent investment ideas. As colleges' enrollment, tuition and subsidies grew throughout the 20th century, so too did their pots of money set aside for ongoing spending and emergencies. How they invested those funds changed, in large part, thanks to David Swensen. A postgraduate Yale alumnus who returned to manage his alma mater's investments in the 1980s following a stint on Wall Street, he championed diversification across both liquid and illiquid investments. As his disciples spread the word, endowments' public equity allocations fell, dropping from 49% to 37% of their portfolios over the two decades ending in 2024. Private equity and venture capital, meanwhile, quadrupled to 23%, according to asset manager Cambridge Associates. Results were spectacular—at first. Pioneers secured access to exclusive funds run by buyout barons like Blackstone (BX.N), opens new tab or technology investors like Sequoia, back when their playbooks were less commonplace. Extraordinary returns from this period cemented the 'Swensen model.' Between 1999 and 2009, Yale returned, opens new tab an annualized 13.4%, while a traditional portfolio split 60/40 between stocks and bonds would have turned in a relatively anemic 2.3%, according to Breakingviews analysis, opens new tab. The trade-off made sense: while it's harder to quickly turn private investments into cash, the inconvenience promised a greater reward. Harvard, Princeton, Stanford and others followed Yale's example. Yet overcrowding is now breaking the formula. Endowments compete not just with each other, but sovereign wealth funds, pension plans, family offices and even retail investors for a slice of private equity, credit and real estate funds. As they swell with assets, these strategies must look beyond the most tantalizing opportunities for less lucrative filler. The effect is already visible. In 2023 and 2024, the average endowment lagged a simple stock-and-bond portfolio by 2 percentage points, according to Neuberger Berman. The CFA Institute finds that, for each percentage point increase in exposure to so-called illiquid alternatives, the average endowment now sees a 0.3-point decrease in excess returns. Worse, President Donald Trump's agenda may force colleges to draw down from their endowments while taxing them more heavily. The administration is slashing $33 billion in annual federal grants and contracts that flow to schools. Gargantuan tax-and-spending legislation recently passed by Congress will raise the tax on endowment income for the wealthiest private universities from 1.4% to as much as 8%. Sinking performance and a need for cash may stall the years-long rush into illiquid markets. Yale is looking to sell up to, opens new tab $6 billion worth of its stakes in private equity funds, the New York Times reported. The Massachusetts Institute of Technology, Notre Dame and others are exploring similar moves. Endowments constituted 10% of the $89 billion in secondary sales of buyout stakes, opens new tab in 2024, according to Evercore. For panicking investment officers, there is a glimmer of hope. Smaller endowments with more money in publicly traded assets are now outperforming their giant, less liquid brethren. Institutions under $50 million averaged 13% annual returns over the past two years, while those over $5 billion earned 9%, data from Commonfund and the National Association of College and University Business Officers show. Performing an about-face and re-embracing public markets requires admitting that paying hefty fees for mediocre performance no longer makes sense. The case for rebalancing, meanwhile, has grown more compelling. The S&P 500 Index (.SPX), opens new tab has returned 11.8% annually since the end of 2009, while the Nasdaq (.IXIC), opens new tab delivered a whopping 15.4%. Furthermore, high interest rates mean that short-term Treasury bills and money market funds are offering yields of 4% to 5% with virtually no risks. Complicated alternatives struggle to match this precise combination. To boot, turning to outsourced chief investment officers for these straightforward strategies, as small colleges are increasingly, opens new tab doing, can further save on fees. The other option for the still-ambitious endowment chief is to explore what Swensen termed 'dark corners': places where information gaps and structural barriers restrain copycats. Infrastructure remains one such frontier, particularly in emerging sectors like data centers, where the U.S. market is expected to nearly double to $411 billion by 2028, say Bank of America analysts, driven by artificial intelligence and cloud computing demands. Along those lines, renewable energy project financing offers fertile ground for institutions capable of navigating complex regulations and multi-decade developments. Private investments in U.S. renewable energy and grid-enabling technologies are projected, opens new tab to reach $1 trillion by 2030, a 65% increase over 2021 levels, according the American Council on Renewable Energy. Catastrophe bonds allow endowments to take advantage of the fact that they can be more patient than an individual investor. Essentially a form of insurance, these notes offer yields of anywhere from 8% to 15% in exchange for taking on the risk of major hurricanes, earthquakes, or pandemics. Modeling the ever-changing risks of this trade seems a neat fit for collegiate intellectuals. Better yet, though it has reached over $55 billion in size, according to Artemis, opens new tab, the market remains dominated by a small group of sophisticated investors. Either way, though, the crisis facing endowments calls for stricter, opens new tab rebalancing, or an overhaul perhaps on the scale of the transformation wrought by Swensen. The clearest paths forward: on the one hand, simplicity; on the other, once again finding the strategies that the common investor would struggle to replicate. Follow Sebastian Pellejero on LinkedIn, opens new tab.
The Independent
05-07-2025
- Business
- The Independent
Colleges will soon have to fork over millions of dollars as Trump's bill extends a tax on their endowments
President Donald Trump 's "big, beautiful bill" has passed and is causing panic for the heads of America's top universities. The bill — which was unanimously opposed by Democrats in the House and the Senate — was sold by Trump as a method for providing tax relief and expanding American wealth. Among its various provisions, the bill levies a tiered tax on university endowments, which previously were not taxable. The new tax is justified by the Trump administration as a way to prevent universities from "[abusing] generous benefits provided through the tax code". The taxes range from 1.4 percent to 8 percent at the wealthiest institutions. Universities rely on their endowments to fund essential operations and to provide services to their students. In 2017, during Trump's first term, Congress started taxing universities with endowments of $500,000 or more per student at 1.4 percent. The new bill expands that. Harvard and Princeton both have endowments of $2 million or more per student. They will be subject to an 8 percent tax on their investment income. It could be worse; the original House bill set the tax at 21 percent, and Vice President J.D. Vance — himself a product of a wealthy school and its endowment funding — wanted to set the tax at 35 percent, according to the New York Times. Harvard has the largest endowment of any U.S. university, with an estimated $53.2 billion. At an 8 percent tax rate, the school will be paying approximately $4.24 billion to the federal government. Only nine U.S. universities qualify for the highest tax rate; Harvard, Yale, Princeton, MIT, Stanford, CIT, Juilliard, Amherst and Pomona. Schools with endowments of between $750,000 and $2m per student will be taxed at 4 percent. That tier includes universities such as Notre Dame, Dartmouth, the Mayo Clinic College of Medicine, Baylor, Northwestern, Johns Hopkins, Duke, Vanderbilt, the University of Chicago, Columbia and Brown. In the case of a school such as the University of Chicago, the college has an endowment of $850,000 per student, so it will be taxed at the 4 percent rate. With an endowment estimated at $10.4 billion, the university will pay $416 million each year. The University of Notre Dame's endowment is approximately $18 billion, so it will pay around $720 million each year. All other schools that qualify — meaning they have at least 500 tuition-paying students — will be taxed at 1.4 percent. The tiered endowment taxes aren't the only changes to higher education that the "big, beautiful bill" has introduced. Student loans are also being re-tooled. A lifetime borrowing cap of $100,000 for graduate students and a $200,000 cap for law and med school students is now in place. The bill also set a $65,000 cap on Parent PLUS loans, which are unsubsidized loans that parents can use to support their dependent undergraduate students. Those loans will no longer be eligible for repayment programs. Repaying student loans has also changed. The new bill puts limits on deferments and forbearances and replaces existing income-based payment plans — aimed at helping lower-income borrowers — with two ways to repay. One plan is a standard repayment plan that lets borrowers pay over 10 to 25 years based on their loan amounts, regardless of their income. The other is labeled at a "Repayment Assistance Plan" that is based on a percentage of a borrower's discretionary income. The approximately eight million borrowers enrolled in former President Joe Biden's SAVE repayment plan will have to wait a little longer for a judge to rule on the program's legality.
Bloomberg
16-06-2025
- Business
- Bloomberg
Rich Colleges Would Face Lower Tax Hike Under Senate Bill
Wealthy US colleges scored a win on Monday with the release of Senate Republicans' tax bill, which would institute a lower tax hike on endowments than what GOP House members have backed. Private universities with at least 500 students that have endowments of $2 million per pupil or more would pay an excise tax of 8% under the new bill released by the Senate Committee on Finance. That's much lower than the 21% rate that was included in the House proposal, which passed the chamber in May.
