At Verger, we’ve got deep roots in the higher education endowment management space and we’re familiar with how quickly things can change on campuses and in investment offices.
When we opened our doors in 2014, our mission was to use our vast experience from university investment offices to invest in the lives of others and help a wider range of non-profits achieve their goals and aspirations through the OCIO model. We’ve been paying close attention over the years as the higher education endowment space has continued to evolve.
Small & Mid-Size Endowments Go OCIO
As recently reported by FundFire, a number of small & mid-size universities have been closing their internal investment offices and transferring day-to-day responsibilities to OCIO firms. This shift is part of an ongoing trend – one that annual findings from the NACUBO Endowment Study have shown growing over time.
According to the recent NACUBO Endowment Study 50-Year Retrospective, as of Fiscal Year 2023, 46% of study respondents had adopted an OCIO model, compared to 34% in 2010. Zooming in on higher education endowments with less than $500 million in assets, the most recent study shows that more than 50% of small & mid-size higher endowments use an OCIO model.
Why is the move to an OCIO model so prevalent among smaller endowments in the higher education space? The NACUBO 50-Year Retrospective discusses additional trends that can help add detail to the bigger picture.
Driving trend: The prevalence of Alternative Investments
In recent decades, Alternative Investments have assumed their position as a cornerstone of higher education endowment asset allocation. As the retrospective study from NACUBO points out, perpetual institutions seem to have found the trade of higher potential returns for lower liquidity to be an ideal fit, given their long-term perspective.
When Salem Academy and College announced it had selected Verger to manage the endowment earlier this year, the institution highlighted that the partnership “offers Salem the benefits of scale and […] investment managers who would otherwise be difficult to access.” In particular, “Verger’s mature private capital program contains a range of vintage years across vast areas such as growth equity, venture capital, and more.”[1]
[1] Salem Academy and College was not compensated for the comments noted herein.
As Salem also pointed out in the announcement, Verger clients benefit from the scale and purchasing power of a more than $2 billion diversified portfolio, with immediate and pro-rata access to a seasoned allocation of private capital strategies across a range of asset classes and vintage years.
Driving trend: Funding support for annual operating budgets
In addition to identifying a long-term trend of schools increasing their reliance on endowments for higher shares of annual operating budgets, the NACUBO retrospective study also highlights that in difficult and unprecedented times (including the COVID pandemic) 49% of study respondents increased endowment support for operational budgets.
Since our 2014 inception, Verger has provided over $800 million in spending distributions and operational support for our clients. Because we work as a direct extension of our clients’ staff, we view the institution’s entire financial picture while facilitating and supporting conversations around operating budgets and endowment distributions. This often includes confronting short-term challenges and looking ahead with careful long-term strategic planning.
Our all-weather investment philosophy gives us the confidence to support spending distributions and operational support for our clients throughout market cycles. At the core the philosophy is the balance between participating in market upside and protecting on the downside. We strive to protect client assets across market cycles, perform to maintain and grow purchasing power, and provide reliable payments to move client missions forward with confidence.
Striking this balance is a complicated task – but we’re up for the challenge. Since our inception, we have been able to provide Verger’s clients with attractive risk adjusted returns and with portfolios designed to provide repeatable and predictable distributions to support their missions. We believe we are well positioned to continuing doing so going forward, no matter the market environment – and look forward to continuing to help small & mid-size colleges and universities gain access to the benefits of our OCIO model.
For more information about Verger’s philosophy and approach download our whitepaper The Return of the Prudent Investor or contact us here.
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