The Modern Endowment Story: A Ubiquitous United States Equity Factor

15 Pages Posted: 18 Nov 2021 Last revised: 6 Jan 2022

Date Written: January 5, 2022


The endowment model, presumed to be a paradigm of value-adding asset class diversification, is a thing of the past. Large educational endowment funds in the United States have heavily concentrated their investments—public and private—in ones that are moderately to highly correlated with the Russell 3000 Index. I estimate that large endowments have underperformed by 2.24% to 2.5% per year over the 13 years ending June 30, 2021. I estimate that their annual cost of investing is approximately 2.5% of asset value. Given the extreme diversification of the composite, which comprises more than 100 large endowment funds with an average of more than 100 investment managers each, there is every reason to believe that cost is the principal cause of endowments’ poor performance. During the most recent 5–7 years, which I refer to as the Modern Era, endowments have exhibited an effective US equity exposure of 97% of asset value, with frictional cash accounting for 3%. The overwhelming exposure to the US equity market raises important strategic questions related to risk tolerance and diversification for trustees and fund managers.

Keywords: Endowment Funds, Investment Performance, Alternatives, Institutional Investors, Asset Allocation, Performance Benchmarking

JEL Classification: G00, G01, G10, G11, G14, G23

Suggested Citation

Ennis, Richard, The Modern Endowment Story: A Ubiquitous United States Equity Factor (January 5, 2022). Available at SSRN: or

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