The eight Ivy League endowments had an average return of 8.3% in the 2023-2024 fiscal year (July 1, 2023 to June 30, 2024). Comparable schools like Stanford and MIT achieved 8.4% and 8.9% respectively. In sharp contrast, the S&P 500 rose 23.5% over the same period, almost three times as much as the Ivies.
To make matters worse, universities allocate tens of millions of dollars from their general revenues to their fund managers. Take Stanford, for example. The financial assets are managed by the Stanford Management Company. For the current fiscal year 2024/25, the Provost has allocated $56.7 million to SMC. Over the years, these allocations amounted to hundreds of millions. The head earns more than $5 million a year. The workforce consists of 59 individuals and was hired to meet the university’s diversity, equity and inclusion requirements. Its investments must also address the university’s environmental concerns.
What about long-term comparisons for average annual returns?
Time SMC S&P 500
5 years 9.9% 11.3%
10 years 8.6% 15.2%
20 years 9.3% 10.5%
Why the difference? SMC invests in private equity, real estate and bonds, with a much smaller share in listed shares. DEI and environmental considerations must also be taken into account. Just like generals who fought the last war, fund managers invest according to the old model.
Boards of Trustees have oversight of their capital managers, usually delegated to Committees on Finance and Investment. More than a third of Stanford Trustees are in the money management industry. You would think that changes would have to be made among endowment fund managers when their budgets of tens of millions of dollars result in returns that pale in comparison to the S&P 500. After all, every university claims that it must be responsible with the gifts of its donors.
What blunts any change is the reality that serving as a trustee of one of the world’s largest universities carries enormous prestige in the philanthropic world. What most Trustees want is their name on a building, on one or more special professorships and on research centers and institutes. At Stanford, for example, a third of all professorships are appointed (endowed) and most buildings on campus are named. Barring a financial shock such as the Great Recession of 2008-2009 or a major scandal, Trustees generally leave the management of their universities to their presidents, provosts, deans and faculties. The Ivies, Stanford and MIT are blessed with fabulously wealthy alumni who are likely to donate new money every year.