July 2016

Endowment Portfolios With More Than 15% Allocated To Private Investments Consistently Outperformed Peers

The Takeaway: Institutional Investors Concerned About Achieving Excess Returns and Meeting Spending Needs Should Consider Crossing the 15% Private Investment “Frontier”; Perceived Barriers to Such Allocations May be False

BOSTON (July 26, 2016) – The gap between top performing endowment portfolios and the median has been wide of late, and a key indicator of better performance is a 15% or greater allocation to private investments like venture capital, private equity and distressed assets.

That’s according to research among a universe of 453 university, college and foundation endowments by investment advisor Cambridge Associates. The research, published in a new Cambridge report, “The 15% Frontier,” finds that endowment portfolios with more than 15% allocated to private investments have outperformed their peers consistently, and for decades.

For the 2015 fiscal year, ended June 30, 2015, the MSCI World Index, which tracks the performances of large- and mid-cap companies across 23 developed countries, returned -0.32%. For the same period, the median return of the endowment universe was stronger: 1.3%. And if one looked only at endowments with 15% or more of their assets in private investments, the median return was much better, 3.6%, for fiscal year 2015.

“The performance impact of substantial allocation to private investments is striking. And it’s not just a recent, or occasional, phenomenon,” said Philip Walton, President of Cambridge Associates. “It has been true with significant consistency over the long term, based on data we’ve collected since the 1970s.”

“Not only did institutions with more than 15% in private investments outperform over the past five and 10 years, but they also outperformed by similar margins over the past 15- and 20-year periods. In fact, over the 20-year period, endowments with over 15% allocated to privates outperformed those with less than 5% in privates by a cumulative margin of 182 percentage points, or 180 basis points per year,” said Walton.

Table: Institutions With 15%+ Allocations to Private Investments Are Top Performers


For the 10 years ended June 30, 2015, venture capital, private equity and distressed securities were the three best performing asset classes, with annualized returns of 12.6%, 11.4% and 10.4% respectively, each outperforming the equity and bond markets on an equivalent basis. Given that, it’s not surprising that the top-performing quartile of endowments had, in the same timeframe, an average private investment allocation of 24.1%, while the bottom quartile only had a 6% allocation, according to the paper.

“It’s important to note that the group of endowments with more than 15% in private investments is no longer limited to a handful of very large universities and foundations. For the 2015 fiscal year, almost 40% the report’s endowment universe, 174 institutions, reaped the benefits of this larger private investment allocation,” said Walton.

Barriers to High Allocations to Private Investments Aren’t as High as Many Institutions Believe

“The three main concerns institutions express about adding private investments at a level that might boost returns are a concern about illiquidity, which is a component of long-term commitments to private investments; the belief that private investments can only be made successfully by large institutions with the scale and resources to build a diversified program; and the sense that few investors can access the limited group of top-tier private investment funds essential to a successful program,” Walton said.

“These concerns are certainly understandable – but they are often over-stated. We believe they do not, for most institutions, preclude a private investment allocation of 15% or more,” Walton added.

While the report says every institution with an endowment needs to be certain that the liquidity in its portfolio is adequate for all likely cash flow needs, it also points out that many institutions place a value on liquidity that exceeds actual cash needs, even in worst-case scenarios. “Many institutions may find that a higher private investment allocation is well within their tolerance for illiquidity,” Walton said.

When it comes to concerns about endowment size, the report points out that a number of the outperforming endowments in the report’s universe – those with 15% or more in private – are relatively small. Of the 174 in the 2015 top-performing group, 48 have assets below $500 million, including 26 below $250 million.

“And the view that private investing requires access to a very small group of tightly closed top-tier firms is a somewhat dated view of the private investment industry. As it has grown and developed, new and developing venture capital funds have frequently appeared at the top of the lists of vintage year returns, often outperforming established funds,” said Walton.

To read the full 15% Frontier research report, click here.

For more information, or to speak with Philip Walton, please contact Eric Mosher, Sommerfield Communications, Inc., at (212) 255-8386 /

About Cambridge Associates

Founded in 1973, Cambridge Associates is a provider of independent investment advice and research to institutional investors and private clients worldwide. Today the firm serves nearly 1,000 global investors and delivers a range of services, including investment consulting, outsourced investment solutions, research and tools (Optica digital platform), and performance monitoring, across asset classes. The firm compiles the performance results for more than 5,600 private partnerships and their nearly 70,000 portfolio company investments to publish its proprietary private investments benchmarks, of which the Cambridge Associates LLC U.S. Venture Capital Index® and Cambridge Associates LLC U.S. Private Equity Index® are widely considered to be among the standard benchmark statistics for these asset classes.  Cambridge Associates has more than 1,200 employees serving its client base globally and maintains offices in Arlington, VA; Boston; Dallas; Menlo Park, CA; London; San Francisco; Singapore; Sydney; and Beijing. Cambridge Associates consists of five global investment consulting affiliates that are all under common ownership and control. For more information about Cambridge Associates, please visit

This press release is provided for informational purposes only and is not intended to be investment advice. Any references to specific investments are for illustrative purposes only. The information herein does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. This release is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction. Past performance is not a guarantee of future returns. Broad-based securities indices are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment funds. Investments cannot be made directly in an index.

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