MIAMI BEACH — Endowments are rethinking their investments in response to weak returns on traditional assets.
At the iConnections conference on Tuesday, several chief investment officers said the strategies that drove earnings growth in the past decade may not work in the next decade. Equity valuations remain elevated, credit spreads are near historic lows, and private markets are crowded, leaving little room for error.
“I think generally speaking, our expectation is that for all the traditional asset classes that we invest in, we believe this is going to be both return compression and potentially alpha compression,” said Kim Lew, CEO and president of Columbia Investment Management.
Lower expected returns create mathematical problems. For example, a private foundation must pay out approximately 5% of its assets each year. Add in operating costs and the minimum return on capital goes up. “If you can’t get an 8% return, then the model doesn’t work,” said Carlos Rangel of the WK Kellogg Foundation, one of the largest philanthropic foundations in the United States.
This pressure is driving investment teams to look further afield. Lu said outperformance may require “moving a little further down the risk curve” and exploring strategies they haven’t used before.
In some cases, such searches have led to donations in cryptocurrency markets that were once considered too volatile or complex to operate for traditional institutions. Early university investors such as Yale and Harvard backed cryptocurrency-focused venture funds years ago, gaining indirect exposure to digital assets through private vehicles. Recently, spot Bitcoin gained approval The U.S.-based Ethereum (ETH) exchange-traded fund offers an easier route.
For example, Harvard University and Brown University disclosed positions in Bitcoin and Ethereum ETFs in their latest 13F filings. While the allocation size appears small relative to its overall portfolio, the disclosure shows how digital assets have moved from the fringes of institutional financing into the mainstream toolkit.
For endowments with lower expected returns from stocks and bonds, crypto ETFs can serve as high-risk, high-volatility satellite positions.
Still, panelists made clear that the broader challenges transcend any single asset class. After years of strong market performance, many institutions are adjusting their expectations. Equity risk premiums look low, private markets are holding record amounts of unsold assets, and macro uncertainty remains high.
“I think it’s a very difficult setup to get a great return,” Lue said.
