Key Takeaways
- • Chestnut Advisory Group's Amanda Tepper argues that one-year returns are not the primary bellwether for institutional investors, even as university endowments report record-breaking fiscal year returns.
- • Morgan Stanley Wealth Management's head of OCIO Sona Menon says high double-digit absolute returns are difficult to replicate annually and recommends a three-to-five-year evaluation horizon.
- • Bank of America's William Jarvis says endowment success should be judged over 10, 15, 20, or 25 years, given spending rates of 4.5% for endowments and 5% for private foundations.
- • Bank of America's 15-year future inflation estimate is about 2.3%, the benchmark against which purchasing-power preservation is measured.
- • Liquidity management and governance are cited as critical factors, with overallocation to private assets potentially undermining strong performance.
Summary
As university endowments release record fiscal-year returns, advisors and OCIO providers are questioning whether one-year performance is a meaningful measure of success. Chestnut Advisory Group's Amanda Tepper said absolute return is "not the primary goal" and described annual performance as "just an output at any given time." She noted that investment policy statements and philosophies, rather than annual rankings, should guide multi-generational portfolios, and that within Chestnut's OCIO framework performance is "one of 8 or 12 factors."
Morgan Stanley Wealth Management's head of OCIO Sona Menon, responding by email, said other factors matter, such as how endowments support a university's spending needs. She added that "high double-digit absolute returns are difficult to replicate every year" and that a three-to-five-year evaluation window can be more informative. According to the article, many large endowments were helped by early investments in SpaceX, and the performance gap between top-tier and other university endowments narrows considerably over a 10-year period.
Bank of America's William Jarvis, who oversees thought leadership for institutional and private nonprofits in the bank's endowment and foundation group, told Institutional Investor that one-year returns are "not the end of the process." He argued that the objective is sustaining purchasing power, noting that donor capital must keep pace with inflation. With endowments spending roughly 4.5% of portfolios annually and private foundations 5%, Jarvis said investors should look at 10-, 15-, 20- or 25-year horizons. Bank of America's 15-year inflation estimate is about 2.3%.
Bernard Reidy, who oversees national endowment and foundation OCIO clients at Bank of America Private Bank, said these portfolios are increasingly complex and that limited organizational resources constrain growth-asset management. He pointed to committee turnover and term lengths as governance challenges, observing that "most don't think in terms of governance."
Chestnut Advisory divides OCIO services into three areas: investments, operations (including customer reporting and sub-accounting), and value-added services such as ESG, education and fundraising support. Liquidity management was flagged as equally important, with Tepper warning that strong performance may not matter if an overallocation to private assets forces asset sales to meet commitments such as student aid.
Morgan Stanley Wealth Management's head of OCIO Sona Menon, responding by email, said other factors matter, such as how endowments support a university's spending needs. She added that "high double-digit absolute returns are difficult to replicate every year" and that a three-to-five-year evaluation window can be more informative. According to the article, many large endowments were helped by early investments in SpaceX, and the performance gap between top-tier and other university endowments narrows considerably over a 10-year period.
Bank of America's William Jarvis, who oversees thought leadership for institutional and private nonprofits in the bank's endowment and foundation group, told Institutional Investor that one-year returns are "not the end of the process." He argued that the objective is sustaining purchasing power, noting that donor capital must keep pace with inflation. With endowments spending roughly 4.5% of portfolios annually and private foundations 5%, Jarvis said investors should look at 10-, 15-, 20- or 25-year horizons. Bank of America's 15-year inflation estimate is about 2.3%.
Bernard Reidy, who oversees national endowment and foundation OCIO clients at Bank of America Private Bank, said these portfolios are increasingly complex and that limited organizational resources constrain growth-asset management. He pointed to committee turnover and term lengths as governance challenges, observing that "most don't think in terms of governance."
Chestnut Advisory divides OCIO services into three areas: investments, operations (including customer reporting and sub-accounting), and value-added services such as ESG, education and fundraising support. Liquidity management was flagged as equally important, with Tepper warning that strong performance may not matter if an overallocation to private assets forces asset sales to meet commitments such as student aid.
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