How Alternative Investments Saved the Day for Big University Endowments

University endowments, battered by stock-market losses, posted their worst fiscal year since the financial crisis. The largest funds, however, were helped by higher allocations to alternative investments, such as private equity, venture capital, and hedge funds, which lost less than stocks.

School funds lost a median 7.8% in the 12 months through June 30, according to preliminary data from Cambridge Associates. The S&P 500 was off 10% in that period. That’s the worst year for endowments since 2009, when the median decline was 19%. In contrast, fiscal 2021 was a blockbuster, with endowments gaining 30.6%, on average, says TIAA and the National Association of College and University Business Officers. Endowments with more than $1 billion had 48% of their holdings in alternatives, and 9.9% in U.S. equities as of fiscal 2021, the latest figures available. Smaller funds—$251 million to $500 million—had 26.1% in private assets, 25.2% in U.S. stocks.

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