Endowment Asset Growth Outpaces Any Other Institutional Investors

Endowment assets are expected to grow faster than those of other institutional investors. However, traditional asset managers will need a targeted approach to win mandates to capture this growth.

The latest Cerulli Edge — US Institutional Edition forecasts that endowment assets will grow at an annual rate of 7.9% over the next five years, which is the highest expected growth rate of any type of institutional investors.

In comparison with other institutional investors, public-defined benefit plans are expected to increase by 4.7% over the next five years, while corporate-defined benefits plans are expected to grow by 2.2% over the period.

Cerulli reported that large endowments with over $1 billion in assets under management represent the best opportunity for traditional asset managers to tap into the growth of the endowment channel.

According to the report, large endowments account for just 4.5% of total endowments in the US. However, they collectively manage roughly 78% of assets in the channel.

A targeted approach to distribution and the right product mix will enable traditional asset managers to secure win mandates from this sizable asset pool, Cerulli recommended.

Large endowments have relatively sizeable allocations to US (8.8%) and non-US (9.3%) equities, as well as fixed income (9.5%).

In addition, 35% of endowments expect to increase their allocations to developed non-US equity and US investment-grade fixed-income strategies over the next 24 months.

Traditional asset owners could also turn to outsourced chief investment officer (OCIO) providers to capture endowments assets, as 44% of endowments used an OCIO provider in 2023 — a figure that has remained relatively stable since 2020.

Chris Swansey, associate director of Cerulli, said:  “The growth in endowment assets can be intriguing for traditional managers looking to expand their institutional footprint.

“However, managers will have to overcome several challenges to make headway, including increased demand for alternative investments and establishing relationships with hard-to-reach OCIO providers.”