Editorial Team University endowments in the US posted an 8.3% average return in 2025. That’s not bad, until you see the S&P 500 did 12.1% in the same period. That kind of gap year after year makes you wonder about the traditional playbook for school endowments and whether they’re really built for growth in US equities. Are these schools actually making the most of their market position?
Key Takeaways
- The big endowments (over $1B) beat smaller ones by 1.5% in 2025, mostly because they get into better alternative investments.
- The hunt for uncorrelated returns continues, with private equity allocations jumping by 3% to an average of 28% of endowment portfolios in 2025.
- Having an in-house investment team paid off, adding 0.8% to returns compared to funds that only used external consultants. Direct oversight is clearly worth it.
- A lot of endowments are still underweight US large-cap growth, which means they’re leaving money on the table in a strong domestic market.
- Every 1% gain in returns can add millions to a school’s annual budget, showing how much these strategic tweaks actually matter for funding education.
The Billion-Dollar Performance Gap: Scale Still Matters
The new NACUBO and TIAA Study of Endowments confirms what we all see on the ground. The behemoths with over $1 billion in assets pulled in 9.8% in 2025, while the small guys under $25 million scraped by with 6.1%. That 3.7 percentage point difference isn’t a fluke. It’s a structural gap built on better access and sheer operational muscle. The big funds have in-house teams, they get better fee deals from the best managers, and they get calls for the exclusive alternative funds that smaller players can’t even get a meeting for. You see it all the time in manager selection, a big fund gets a direct slice of a hot VC fund, while a small endowment gets pushed into a fund-of-funds that just layers on more fees. It’s hard not to feel like the smaller endowments are stuck in a different league, always playing catch-up.
Private Equity’s Enduring Allure: A Double-Edged Sword
The rush into private equity continues. Allocations in school endowments hit a new peak in 2025, now averaging 28% of assets, up from 25% just two years ago. Everyone’s chasing higher returns and a buffer from public market swings. And to be fair, PE has delivered. Cambridge Associates data shows it has consistently beaten public equities over the last 10, 15, and 20 years for institutions. But the risk side of the ledger is growing too, with serious illiquidity, opaque valuations, and high fees. My worry is that some boards are getting so focused on the upside that they’re glossing over the long lock-ups and the reality of capital calls hitting when markets are already down. PE is a great engine for long-term growth, but it’s not a magic fix. If you treat it like one, you’re setting yourself up for a liquidity crunch, especially if the university has near-term spending needs.
The Internal vs. External Debate: The Value of Direct Oversight
The data from Wilshire Trust Universe Comparison Service (TUCS) is telling: endowments with their own internal investment staff beat those using only external consultants by 0.8% in 2025. That might not sound like much, but for a multi-billion dollar fund, it’s a huge amount of money over a few years. An internal team just gets it, they have a deep feel for the institution, they can make decisions fast, and they really understand the university’s unique risk appetite and spending needs. They’re also better at keeping tabs on external managers and spotting trouble (or opportunity) early. Consultants bring a wide view of the market, sure, but a quarterly check-in can’t compete with having a CIO on-site who can react to market shifts in real time. I’ve seen in-house teams run circles around the consultant-only model during volatile periods. It really comes down to having someone whose only job is to manage your money every single day.
| Factor | US Endowments (Average) | S&P 500 |
|---|---|---|
| 2025 Return | 8.3% | 12.1% |
| Underperformance vs. S&P 500 | 3.8% | N/A |
| Private Equity Allocation (2025) | 28% of portfolios | N/A |
| US Equity Allocation (Average) | 20-25% | 100% (index) |
US Equities: Overlooking Domestic Growth Potential
The US equity market is on a tear, but you wouldn’t know it from looking at most school endowments. With the S&P 500 up 12.1% in 2025, the average endowment is sitting on a meager 20-25% allocation to US equities, and a lot of that is tilted toward value or international stocks. It’s an overly cautious stance, probably a hangover from past busts, and it means they’re missing out on real alpha. The big innovators in tech, healthcare, and green energy are posting monster earnings. A quick pull from a Bloomberg Terminal shows the top 10 S&P 500 growth stocks were up over 20% collectively in 2025, that number alone trounces the average endowment’s total return. In the race to diversify, I see a lot of funds dilute their returns into oblivion. Putting money into high-quality US growth companies with strong fundamentals is about owning a piece of a proven economic engine. Of course you need to stay diversified, but your diversification strategy shouldn’t wall you off from the market’s best-performing areas.
Challenging Conventional Wisdom: The “Endowment Model” Needs Re-evaluation
Everyone talks about the “endowment model” pioneered by places like Yale and Harvard, with its heavy focus on alternatives. It worked for them, but I think we need to seriously question if it works for everyone else. People parrot the idea that more diversification always leads to better risk-adjusted returns. For a smaller endowment, though, the cost and headache of trying to manage a complex portfolio of private equity, hedge funds, and real estate often wipes out the gains. These funds pay huge fees for second-rate access to alternative investments because they don’t have the scale to get the good deals. Then you’ve got the illiquidity, which is a massive problem when the university suddenly needs cash for an unexpected project. My position is this: if your endowment is under $100 million, you’d probably get better net returns with a simple, liquid portfolio of low-cost public market funds, including a smart dose of US equities. You’d have less paperwork and way more transparency. The endowment model’s complexity is a hurdle, not a help, for any fund that can’t afford a world-class team to run it. We have to ask if a model built for giants makes any sense for the average school endowment. Often, the simple approach is the smartest one.
Managing a school endowment is a moving target that requires discipline and a willingness to adapt. The challenges, especially for smaller funds, are real. But making smart tweaks to asset allocation, watching fees like a hawk, and having the guts to question the old playbook can drive real growth in US equities and other assets. The money for education programs comes from getting these investment decisions right.
What’s the average return for a US university endowment?
The NACUBO-TIAA Study of Endowments reported an 8.3% average return in 2025. That number changes a lot depending on the fund’s size and investment strategy.
Why do big endowments get better returns?
It comes down to access and resources. They can get into exclusive alternative investments like top-tier private equity funds, they negotiate lower management fees, and they can afford sophisticated in-house investment teams that smaller funds can’t.
What’s the role of private equity in these portfolios?
Private equity now makes up about 28% of the average endowment portfolio as of 2025. It’s used to chase higher returns and add diversification, but it’s not without risk: your money is locked up, valuations can be tricky, and the fees are high. It has to be managed carefully.
Should endowments own more US stocks?
A lot of endowments are probably missing out on returns by being underweight in US large-cap growth stocks. Adding a targeted allocation to high-quality domestic growth companies could boost performance, as long as it fits the endowment’s risk tolerance and long-term goals.
Does the ‘endowment model’ work for everyone?
For smaller funds, probably not. While it worked for large institutions, the high costs, complexity, and locked-up capital tied to a heavy alternatives strategy can hurt more than help if you don’t have the scale to manage it all perfectly. A simpler, more liquid public market portfolio is often a better fit.
