MIAMI BEACH — Endowments are rethinking where they invest as they prepare for lower returns from traditional assets.
At the iConnections conference Tuesday, several chief investment officers said the playbook that delivered gains over the past decade may not perform as well over the next decade. Equity valuations remain high, credit spreads are near historic lows and private markets are saturated, leaving little room for error.
“I think in general our expectation is that for all the traditional asset classes that we’ve invested in, we kind of think it’s both a yield compression and probably an Alpha compression,” said Kim Lew, CEO and president of Columbia Investment Management Company.
Lower expected returns create a mathematical problem. Private foundations, for example, must pay out about 5% of their assets each year. Add operating costs and the critical rate increases. “If you don’t get an 8 percent return, the model doesn’t work,” said Carlos Rangel of the WK Kellogg Foundation, one of the largest American philanthropic foundations in the United States.
This pressure pushes investment teams to look further. Lew said generating outperformance might require going “a little bit further down the risk curve” and exploring strategies they haven’t used before.
This research has, in some cases, led endowments into cryptocurrency markets, which were once considered too volatile or too operationally complex for traditional institutions. Early university investors such as Yale and Harvard backed crypto-focused venture capital funds years ago, gaining indirect exposure to digital assets through private vehicles. Most recently, the approval of bitcoin spot BTC$66,923.39 and ether (ETH) exchange-traded funds in the United States offered a simpler path.
Harvard University and Brown University, for example, disclosed their positions in Bitcoin and Ether ETFs in their latest 13F filings. Although the allocations appear small compared to their overall portfolios, the disclosures show how digital assets have moved from the fringes of institutional finance to the mainstream toolbox.
For endowments facing lower expected returns from stocks and bonds, crypto ETFs can serve as a high-risk, high-volatility satellite position.
Nonetheless, the panelists made clear that the broader challenge extends beyond a single asset class. Many institutions are tempering their expectations after years of strong market performance. Equity risk premiums appear thin, private markets hold record amounts of unsold assets, and macroeconomic uncertainty remains high.
“I think it’s a very difficult setup for exceptional returns,” Lew said.
