University Endowments: A Primer

22 Pages Posted: 12 Nov 2019

See all articles by Richard Franz

Richard Franz

Oesterreichische Nationalbank (OeNB)

Stephan Kranner

ZZ Vermöegensverwaltung GmbH

Date Written: July 31, 2019


Endowments have been important for society in their role of supporting good causes over long time horizons. Some of them have a long history of more than five centuries. Today, endowments represent an important class of institutional investors.

This article focuses on university endowments, which have been at the forefront of exploring new investment styles and asset classes. Some of these endowments have reported outstanding risk-adjusted returns, which allowed them to strongly support their university financially.

On the one hand, these institutions enjoy supportive characteristics that allow them to seek new investment opportunities. First, endowments do not need to fear fund withdrawals. Second, their investment horizon is perpetual, and third, endowments enjoy a special network among their stakeholders. On the other hand, the investment strategy should be consistent with the spending strategy and the fundraising strategy of the endowment. This needs to be continuously monitored within the governance structure of the endowment, which could limit its investment possibilities.

Interestingly, not all university endowments have enjoyed above-market returns. Comparing the average American university endowment with a simple 60% US stock and 40% US bond allocation reveals a similar return and volatility behavior. As with other institutional investors, only a small number of leading institutions are able to exploit the special characteristics universities endowments could potentially enjoy. To make use of the full range of investment opportunities, an endowment needs to have access to skilled asset managers and sophisticated investment approaches, which depends on the endowment’s size and the network of the institution.

If an endowment has access to such factors, it should be able to generate sustainable, above-market risk-adjusted returns over the long run. If this is not the case, the observation of endowments empirically supports the main advice of financial theory: Diversify and keep asset management costs at a minimum.

Suggested Citation

Franz, Richard and Kranner, Stephan, University Endowments: A Primer (July 31, 2019). CFA Institute Research Foundation Briefs, July 2019, ISBN 978-1-944960-79-7. Available at SSRN: or

Richard Franz (Contact Author)

Oesterreichische Nationalbank (OeNB)

Otto-Wagner-Platz 3, PO Box 61
1010 Vienna, A-1011

Stephan Kranner

ZZ Vermöegensverwaltung GmbH

No Address Available

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