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Secrets of the Academy: The Drivers of University Endowment Success

39 Pages Posted: 7 Nov 2007 Last revised: 19 Feb 2009

Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Jialan Wang

Consumer Financial Protection Bureau; University of Illinois at Urbana-Champaign - Department of Finance

Josh Lerner

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2007

Abstract

In this paper, we have sought to understand what has been the performance of university endowments, and what drives the observed pattern of performance. Our key observations are as follows: (a) the endowments of elite universities have grown dramatically faster than endowments overall; (b) initial endowment size, size of student population, student SAT scores, and membership in the Ivy Plus group are significantly correlated with endowment growth and endowment returns, but endowment returns for public and private schools are very similar; (c) there is considerable persistence of returns across the endowments, particularly among underperforming schools; and (d) alternative investments appear to play an important part in the success of the highest-return endowments, but this strategy cannot be emulated with ease. We also identify a number of unanswered questions. Three gaps in our understanding seem particularly interesting from an academic perspective, as well as practically relevant for those who run or oversee university endowments and other investment pools: the ways in which endowment offices are organized, and how these choices contribute to their success or failure; the viability of the strategies pursued by endowments going forward; and the challenges of imitation.

Keywords: asset allocation, investment management, private equity, hedge funds

JEL Classification: G11, G24, I22

Suggested Citation

Schoar, Antoinette and Wang, Jialan and Lerner, Josh, Secrets of the Academy: The Drivers of University Endowment Success (October 2007). Harvard Business School Finance Working Paper No. 07-066; MIT Sloan Research Paper No. 4698-08. Available at SSRN: https://ssrn.com/abstract=1027450 or http://dx.doi.org/10.2139/ssrn.1027450

Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

50 Memorial Drive, E52-447
Cambridge, MA 02142
United States
617-253-3763 (Phone)
617-258-6855 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jialan Wang

Consumer Financial Protection Bureau ( email )

United States

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Josh Lerner (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6065 (Phone)
617-496-7357 (Fax)

HOME PAGE: http://www.people.hbs.edu/jlerner/

Harvard University - Entrepreneurial Management Unit

Cambridge, MA 02163
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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