Investment Strategies for Collegiate Endowments

The Boston Globe had an interesting article last Friday. In the last few years elite universities and colleges have reaped huge rewards by investing their endowments in “alternative” assets. Their performance has significantly out-stripped that of their peer institutions, leading to further stratification.

When it comes to investing, risk has paid off for the nation’s elite colleges and universities

Endowments at a dozen top-tier schools grew much faster than those at higher education institutions as a whole since the early ’90s, mostly because larger portions of the elite schools’ endowments were allocated to “alternative” assets such as buyout, venture capital, and hedge funds, according to a new research study.

The study, by Harvard Business School professor Josh Lerner and two coauthors, shows substantial increases in average university endowments across the board during that period, but dramatically greater expansion of the top-tier endowments.

UPDATE: More on this in yesterday’s NYTimes.