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Endowment Study Highlights Average Endowment's Decade of Underperformance in Private Equity, Venture Capital, and Private Real Estate Investments

·5 min read

The average endowment could have improved overall performance and liquidity by simply investing in a passive S&P 500 benchmark strategy

BOSTON, MA / ACCESSWIRE / December 1, 2020 / Veriti Management LLC ("Veriti"), a registered investment adviser (RIA) and leading provider of direct indexing technology serving institutions and advisors, announced today that Dennis Hammond, Veriti Management head of Institutional Investments, published an investigational research study in the December 2020 issue of The Journal of Investing titled, 'Should Endowments Continue to Commit to Private Investments?'.

The study reviews the 30-year commitment of endowments to private equity, venture capital, and private real estate - based on expectations of returns superior to those available in the public markets. This study was undertaken to address if private investments underperformed private market indexes, and to encourage institutions to reconsider future private equity commitments.

"For more than 30 years, endowments have committed ever-increasing allocations to private equity, venture capital, and private real estate - all based on expectations of returns superior to those available in the public markets," stated Dennis Hammond, head of Institutional Investments at Veriti Management. "While this widely held belief was rewarded with above market returns for decades, evidence now indicates that the claimed benefits of private investing, as well as the returns reported might be exaggerated."

"The performance of private investments relative to public markets has certainly diminished in recent years," continued Dennis Hammond, "and for the average endowment, no longer compensates for the illiquidity, ongoing capital commitments, and other risks that investors are required to assume. Moreover, if not properly addressed, we believe that private investments inability to outperform public market equivalents over the last decade could prove to be the new norm, and this should present a serious cause for concern for most trustees, and their stakeholders."


  • Over the last 33 years, large endowments have allocated an average of 17% of their portfolios to the private investments reviewed in this study, climbing to more than a 23% allocation over the past 15 years, and a nearly 29% allocation as of FY 2019.

  • Evidence indicates attempts to earn index return in private investments without the access of the largest endowments is an expensive and time-consuming exercise in futility.

  • Over the last 15 years, in most time periods reviewed, the returns for the average endowment in private investments underperformed private market indexes, large endowments, and the S&P 500, adjusted to a modified public market equivalent (mPME).

  • Of the institutions surveyed, 94% report their belief that private equity will outperform public equities by amounts from 2% to 4% or more a year. Ironically, private investments have not compensated the average endowment for the illiquidity, delayed pricing, and misleading performance accounting during the last 15 years.

  • Some large endowments reportedly incur annual internal management fees of 50 bps or more. Given that these costs are unreported across the board, measuring the amount of return amplification is not possible.

  • Ongoing reliance on private investments and private equity in-particular might prove disappointing considering the high levels of undeployed cash, leverage, and price multiples extant today. Fiduciaries should carefully evaluate whether private investments are likely to provide adequate compensation for the illiquidity and risks assumed.

  • Although indexing is by no means new, recent research in a prior paper by Hammond demonstrates superior performance by the simple 60/40 benchmark when compared to the performance of the average endowment for more than 58 years.

In his role at Veriti Management, Dennis Hammond assists institutional clients administer responsible investment solutions customized to their specific preferences and values, finding the optimal blend of financial and social portfolio returns. These factors include faith-based, corporate, environmental, social, or governance (ESG), and UN Sustainable Development Goals (SDGs). Dennis earned his Master of Law (LLM) in Tax from Washington University Law School, a Law degree (JD) from Villanova University Law School, and his B.A. in English from the University of Kansas. Dennis also serves on the board of the New Life Children's Home based in Port au Prince, Haiti.

Hammond has served as an endowment consultant for nearly forty years and is perhaps best known in his 25-year role as CEO and founder of Hammond Associates Institutional Fund Consultants, the second largest institutional consulting firm to Higher Education clients in America, before it was acquired by Mercer Consulting.

About Veriti Management

Veriti Management is an investment adviser registered with the U.S. Securities and Exchange Commission based in Boston Massachusetts. Veriti aspires to change how people visualize investing, focusing on the greater good. We deliver fully customized, tax-efficient, consciously aligned portfolios at a low cost. Veriti's Direct Indexing technology offers substantial tax benefits and the ability for investors to align their portfolios with their values. This single tool is powerful, versatile, personalized, and built to do good. For more information please visit, www.veritimanagement.com.

Veriti Management Contact:

100 High Street, Suite 1110
Boston, MA 02110

Media Inquiries Contact:

Bill Conboy

Disclosure: Veriti Management LLC (Veriti) is an investment adviser registered with the US Securities and Exchange Commission. Such registration does not imply endorsement, or a certain level of skill or training, and no inference to the contrary should be made. Veriti, its strategies, and further disclosures are described in more detail in Part 2 of Veriti's current Form ADV, which is available upon request. The strategies and/or investments referenced may not be suitable for all investors because the appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. Every investment in securities presents the risk of financial loss as well as gain. The information contained in this report (including market values and other data) is from sources believed to be reliable. We cannot guarantee the accuracy or completeness of such information and we assume no liability for damages resulting from or arising out of the use of such information. For more information please visit our website at www.veritimanagement.com.

SOURCE: Veriti Management

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