The eight Ivy League endowments returned an average of 8.3% in fiscal year 2023-24 (July 1, 2023 to June 30, 2024). Comparable schools such as Stanford and Massachusetts Institute of Technology returned 8.4% and 8.9%, respectively. In contrast, the S&P 500 index rose 23.5% over the same period, nearly triple the Ivies.
To make matters worse, universities allocate tens of millions of dollars from their general revenues to fund managers. Take Stanford, for example. Its financial assets are managed by Stanford Management Company. For the current 2024/25 financial year, the Chancellor has allocated $56.7 million to SMC. Over the years, these allocations have reached hundreds of millions. Its chief earns more than $5 million a year. The staff is 59 people and was hired to meet the university’s diversity, equity and inclusion requirements. That investment must also meet the university’s environmental concerns.
How do average annual returns compare over time?
Time SMC S&P 500
5 years 9.9% 11.3%
10 years 8.6% 15.2%
20 years 9.3% 10.5%
Why is it different? SMC invests in private equity, real estate, and bonds, making up a much smaller portion of publicly traded equities. DEI and environmental concerns must also be considered. Fund managers, like generals who fought previous wars, invest in old models.
The board oversees the endowment manager and is typically delegated to a finance and investment committee. More than one-third of Stanford board members are in the money management business. One might think that when endowment fund managers get returns that pale in comparison to the S&P 500 on budgets of tens of millions of dollars, it’s time to make a change. After all, every university insists that it must manage its donors’ gifts responsibly.
The reality is that serving on the board of one of the world’s great universities confers tremendous prestige in the world of philanthropy. What most directors want is to have their name on a building, one or more endowed professorships, a research center or institute. At Stanford University, for example, a third of all professorships are named (endowed) and most buildings on campus are named. Absent a financial shock, such as the Great Recession or major scandal of 2008-09, boards of governors typically leave university management to presidents, provosts, deans, and faculty. Ivies, Stanford, and MIT are blessed with extremely wealthy alumni who will likely donate new funds each year.
