Are Investment Managers Worth Their Keep? A 7-year Evaluation of Active and Passive Investment Performance of a University Endowment

Barbara Von Brandt, Phd, Cpa,Lucien R Costley, Phd

doi:10.33642/ijbass.v8n2p1

Abstract

This study examined the financial performance of Schreiner University’s actively managed endowment and compared the performance to a hypothetical passive investment strategy. From 2014 to 2020, the actively managed endowment produced a cumulative return of 71.7%. In comparison, the passive, index-based portfolio produced a cumulative return of 72.9%. The actively managed portfolio outperformed the passively managed portfolio in four out of seven years but underperformed overall. The performance results of the assets classes were inconsistent throughout the seven-year period. Additionally, a passive strategy of 60% US equities and 40% US bonds would have resulted in a cumulative return of 98.9% over seven years.

Highlights

University endowments play an important role in higher education as distributions from the endowments support academic excellence, maintain facilities, aid ongoing operations, and provide scholarships for deserving students
Because the annual projected distributions from the endowment play an essential role within its operating budget, it is incumbent upon leadership to determine the best investment strategy for maximum gain
At Schreiner University, the investigative research has begun with this seven-year study that examines whether the current active investment strategy managed by financial professionals who assess fees earns higher returns than a passive, index-based strategy

Summary

INTRODUCTION

University endowments play an important role in higher education as distributions from the endowments support academic excellence, maintain facilities, aid ongoing operations, and provide scholarships for deserving students. At Schreiner University, the investigative research has begun with this seven-year study that examines whether the current active investment strategy managed by financial professionals who assess fees earns higher returns than a passive, index-based strategy. This study firstly expands the literature by comparing the actual investment performance of Schreiner University’s endowment over a seven-year period to a hypothetical passive investment portfolio to determine whether active management has generated excess returns. Garlappi, and Tui (2010) studied university endowments for the effect of asset allocation on the performance of multiple-assets class portfolios They found that actively managed endowments have larger returns than passively managed ones and that the average endowment did not earn meaningful risk-adjusted returns.

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