How can university endowment investment teams take portfolio monitoring and governance to the next level?

Higher education institutions play a huge part in the global economy, with billions of dollars in endowments that have been amassed via charitable donations and invested with the goal of achieving long term growth.

Biggest of all, Harvard University closed 2021 with an endowment valued at around $53.2bn, following returns of 336% in the 2021 fiscal year. This means it is wealthier than many of the world’s economies, in GDP terms.

Whilst many of the world’s largest endowments are located in the US, with 65 US universities and colleges there topping $1bn, there are a number of universities around the world are also seeing their endowment funds surpass the billion dollar mark. In the UK, Cambridge and Oxford manage around $8bn each. Saudi Arabia, France, Singapore, Japan and Australia all have $1bn plus endowments at their top universities too.
These vast sums bring both responsibility and power to the investment teams at the institutions who are focused on balancing the golden triangle of fundraising, investment strategy and spending rules.

How do the Ivy Leagues manage their endowments?

It’s a well-known fact that most of the Ivy League universities favour diversified multi-asset class investing with large exposure to alternative asset classes. Almost exclusively so in the case of Yale, whose former CIO at Yale University for over 35 years, David Swensen, famously invested more than 80% of the endowment in alternative assets including private equity, hedge funds, real estate and natural resources. Swensen believed that the three tools of the trade for investors were asset allocation, security selection and market timing, with asset allocation being the most important. He sought the optimal mix of assets at all times.

ESG and diversity and equality are increasingly important

In 2009 Swensen outlined the three main advantages that well managed university endowments could achieve, those being; institutional independence, operational stability and the facilitation of educational excellence.
Today, with increased pressure from donors and students, university endowment investment teams will undoubtedly be trying to improve diversity, social equity and sustainability across their investor portfolios too. The Intentional Endowments Network offers some sound advice for investment teams on assessing their current portfolio for alignment with their own sustainability and social responsibility goals.
So how do university endowment investment teams manage the strict demands of donors and societal pressures, while still delivering strong returns that ensure independence, stability and educational excellence?

Robust monitoring

One answer is robust monitoring and governance processes. Pre and post-investment due diligence and monitoring can provide transparency across a broad and diverse portfolio of different asset classes.

Regular monitoring of funds and managers is essential when relationships can last for years. Yale’s average fund manager relationships lasted 17 years, so you could easily imagine monitoring and governance becoming stale or ineffective over such a long period. Familiarity could become a risk. The best organizations seek to collect and review critical information from their managers regularly, with some information even  required quarterly.

Impartial process automation

The endowments due diligence process becomes a value add, if it can be followed consistently even when it is tedious. By automating the monitoring processes and using alerts and triggers to identify areas of concern or for deeper investigation, a platform like Dasseti, that takes a data-driven approach, even when processing qualitative data, would be invaluable.

Eliminate repetitive tasks

When monitoring long term managers and funds via an investment due diligence or operational due diligence exercise, especially on a quarterly or biannual basis, not much will change from one report to the next. Working through hundreds of responses to identify the tiny changes is time consuming and tedious. A digital due diligence platform like Dasseti can compare responses and identify those changes in an instant. Arming research teams with this information can reduce risk and improve efficiencies.

Leverage every data point available

We have seen the most sophisticated endowments utilize every data set that they can get to get a complete and up to date picture of their managers. The SEC’s Form ADV is one critical data set. Over 30,000 managers and GPs have to file this form, and serious issues have to be reported by law days after they happen. Dasseti integrates this data for clients and automates an alert, allowing them to easily spot any new filing, especially those indicating any important violations. 

Compare ESG and diversity, equality and inclusion metrics

As mentioned before, the Intentional Endowments Network offers some advice on gathering and aligning portfolios using ESG and diversity metrics. They reference the joint work from ILPA and the PRI in creating best practice DDQs to send to fund managers. These are available in the Dasseti platform and can be used exactly as they are, or quickly and easily adapted to suit the specific needs of an endowment investment team. Any data points can be gathered and displayed and analyzed via dashboards, which can then be shared with donors, or governors in a range of formats.

Not every university has the buying power, or a big enough investment team to be the next Harvard or Yale, but our digital due diligence and monitoring tools are available to all endowments and could provide the level of governance and monitoring required to take the institution to the next level. Reach out if you have any questions.