A new era of portfolio construction for endowments

By Ned Rosenman, Edward Ng, Andrew Ang, Aimee Hirata, Terrence Keeley, BlackRock May 12, 2021 Blog Post

Opinions expressed in AGB blogs are those of the authors and not necessarily those of the institutions that employ them or of AGB.


Endowments face a unique set of challenges; their high return goals reflect a need to grow intergenerational equity while meeting ambitious spending requirements. At the same time, they have limited resources and face a broad opportunity set. Endowments have long been investment innovators, beginning with the formulation of the original endowment model 25 years ago. While many endowments, particularly those with more resources and access, have outperformed, the median has recently struggled to deliver returns above a 70/30 market benchmark according to the 2020 NACUBO-TIAA Study of Endowments.

Performance varies by size

Annualized performance of a 70/30 benchmark, median endowment, and average large ($1bn+) endowment

Performance varies by size
Source: Data reflects MSCI ACWI, S&P 500, BBG Aggregate, and NACUBO-TIAA Study of Endowments as of Fiscal Year End, June 30, 2020.

In the forward-looking market environment, we consider four principles for endowment investing:

  1. Focus on factor – not manager – diversification: Managing to the underlying drivers of return (i.e., risk factors) positions portfolios more optimally for multiple outcomes. We show examples of analysis we have performed for endowments looking to better understand this exposure.
  2. Control costs: In many cases, active managers rely on beta or style risk to outperform, and these are available in cheaper, more liquid form.
  3. Apply well-resourced convictions: Finding true alpha today involves greater depth than ever. It requires a research edge and a willingness to deploy concentrated capital to best-in-class ideas. Hedge fund portfolios need to evolve, and we provide a guide for better construction and management.
  4. Employ an innovative approach to private market portfolios: Private markets are evolving rapidly. Having direct market knowledge as well as the ability to source deals across the best management teams is critical to success. We present new ways to build private market portfolios that seek improved outcomes beyond the historical experience many endowments have faced.

Explore the full insights on BlackRock.com


The endowment model boasts several historic insights that still hold true. As long-term investors, endowments and foundations have exploited their unique ability to harvest illiquidity premiums. Endowments also tap into global investment opportunities and new asset classes through deep loyalty networks, tactically and strategically.

Endowments have also been known to pioneer new trading methods and opportunity sets, like co-investment rights. Since relative peer group performance serves as a primary benchmark, perpetual innovation has become a hallmark of endowment investing.

As some endowment portfolios have become more complex and diversified by manager, however, excess returns have been compressed to index-like results. These portfolios also bear great expense and lower liquidity. Meanwhile, the universe of liquid alternatives including index strategies has expanded substantially. Blending index and active strategies with true alpha opportunities will result in more optimal performance. ESG should be embraced as a source of resilience and alpha. Operating costs must be controlled much more diligently. And more concentrated investing is in order wherever deep expertise and valid research has led to high conviction.

Our approach combines factor-based technology with risk management tools and deep investment experience across the public and private markets.  Our focus for the next era of endowment investing seeks to improve cost and capital efficiency, combined with truly unique alpha generation. Theory and practice both show such an approach can deliver consistently superior long-term outcomes.

  • Ned Rosenman, Head of Portfolio Solutions for Endowments and Foundations, Healthcare and Family Offices
  • Edward Ng, CFA, Chief Investment Officer, Endowments and Foundations, Multi-Asset Strategies & Solutions
  • Andrew Ang, PhD, Head of the Factor-Based Strategies Group
  • Aimee Hirata, Global head of Product Strategy for BlackRock Alternative Advisors
  • Terrence Keeley, Senior Advisor and Head of the BlackRock Academies

With Thanks to AGB sponsor: BlackRock

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Cassie Muniak
Head of Client Segment Marketing

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