More than 80% of endowments in the 2021 NACUBO-TIAA Study of Endowments® have added environmental, social, and governance (ESG) factors to their investment policies, as a first step in establishing a responsible investing (RI) approach.
More than a quarter of respondents (26%) said that they believe an RI approach can be a source of “alpha” — performance in excess of a market return – while 39% of the largest endowment funds said that it can, versus 16% of the smallest endowments. However, these numbers have increased relative to last year’s survey, indicating growing belief in the investment merits of responsible investing.
Endowments reported meaningful increases in stakeholder interest in RI issues in 2021, including among students. Eleven percent of institutions saw increased student interest in responsible investing compared with 2020, and 6% saw increased interest among donors.
For the first time, the survey gauged how many respondents received gifts (65%) specifically for diversity, equity, and inclusion (DEI) initiatives, such as scholarships, research programs, and endowed chair and faculty funding. The percentage of endowments reporting that their institution had a formal policy on DEI in investment manager selection increased from 6% in 2020 to 8% in 2021. Private institutions are more likely to have such a policy.
The study, released Feb. 18, reflects the responses of 720 institutions representing $821 billion in endowment assets. For the 12 months ending June 30, 2021, endowments generated an overall average return of 30.6% (net of fees), light years ahead of the 1.8% overall average return in 2020.
The average size of endowments in the survey was $1.1 billion, up 35% from 2020, and the median endowment was about $200 million. More than half of participating endowments were less than $250 million.
