Ivy League endowments offer investors several key lessons, particularly when it comes to asset allocation. In fact, studies have shown that asset allocation policy is the primary determinant of performance for endowments[1] — so when Ivy League endowments reveal that they are steering a meaningful amount of capital toward real estate, savvy investors should take note. Here we’ll explore why and to what extent Ivy League endowments are allocating to real estate, and what it means for individual investors.


Endowment performance compared to a standard 60/40 portfolio of US stock and bonds (growth of $10,000). Data as of June 30, 2019.

University endowments are designed to provide substantial levels of cash flow for the institution’s operating budget, generating funds to help pay for research, salaries, and financial aid. Endowments are also tasked with preserving purchasing power for future generations, which fosters a focus on the growth of principal and increased future earnings. As such, the programs tend to have long investment horizons, large asset bases, and little reliance on market timing for generating returns.

In terms of results, nobody meets their mandate better than the Ivy League: In annual studies among a pool of more than 800 college and university endowments, the Ivy League reliably dominates the upper ranks.[2] Over a twenty-year period, the standout endowments of Yale, Princeton, and Harvard notably posted average annual returns of 10.3%,[3] besting a traditional 60/40 equity/bond portfolio by a substantial 6 percentage points annually.[4]

The rationale behind allocating heavily to real estate

A meaningful portion of the strong returns generated by Ivy League endowments appears to stem from their sizable allocations to real estate. To understand why these funds allocate heavily to real estate, it’s helpful to step back and examine their broader views on alternative investments. For the past several decades, endowments have increasingly committed to diversifying their portfolios by channeling more dollars to alternative investments such as hedge funds, private equity, venture capital, and real estate.

At the heart of this evolution is modern portfolio theory, an asset allocation framework developed by Nobel Laureate Harry Markowitz and widely adopted by institutional investors. Modern portfolio theory posits that investors can improve the risk-adjusted returns of their portfolios by diversifying across multiple assets with varied correlations. It proposes that investors can identify an optimal asset allocation designed to generate an ideal balance of minimal risk versus maximum return. For many investors, the framework recommends a portfolio allocation of 10-20% to alternatives, including real estate.

Many endowments have taken this portfolio construction philosophy and pushed it even further. Within the Ivy League, Yale’s David Swensen is often credited for creating and popularizing the so-called endowment model, which advocates for a markedly higher allocation to alternative assets. The approach has paid off handsomely: Swensen earned the Yale endowment more than $20 billion in excess returns over a 20-year period, and during the first 30 years of his leadership, the fund earned an average annual return of 12.5%.[5] [6]

Under Swensen’s direction, Yale dramatically reduced the endowment’s exposure to U.S. securities by reallocating from traditional to alternative asset classes. In 1987, nearly 80% of the endowment was committed to U.S. stocks and bonds. In recent years, the program’s target allocations have called for less than 10% in domestic securities while diversifying assets such as foreign equity, real estate, and venture capital have come to dominate the endowment, representing approximately 90% of the target portfolio.

Other endowments are following suit, with alternative assets in university funds rising from only 7% of holdings in 1990 to 55% in 2015.[7]

Within alternatives, real estate plays a particularly vital role, due to its ability to both provide meaningful diversification, and generate a steady flow of income while maintaining equity upside. Not surprisingly, Ivy League endowments commonly target high single-digit percentage allocations to direct real estate investments — and often much higher. For example, Yale’s real estate allocation between 2015 and 2019 averages to 12%, while Harvard’s real estate allocation averages to 14%. With a similar mindset, Princeton holds an 18% allocation in real assets, highlighting, in particular, the potential to generate superior risk-adjusted returns by investing in these assets long-term.

What Ivy League endowment real estate allocations mean for accredited investors

Compared to Ivy League endowments and institutional investors in general, most individuals allocate substantially less of their portfolios to alternatives at large, and even less to real estate in particular. In fact, individuals dedicate an average of just 5% of their portfolios to alternatives, according to a report by the Money Management Institute. As a result, individuals with long-term investment horizons may be missing out on a potentially attractive source of diversification and risk-adjusted return.

It’s important to note that Ivy League endowments primarily focus their real estate capital on private, direct investments; publicly-traded real estate investments, such as shares of REITs, are less commonly held. While accredited investors may readily recognize direct real estate as a valuable addition to the traditional stock and bond portfolio model, it has historically been difficult to efficiently access the asset class.

Ivy League endowments are able to draw on relationships and local expertise to identify quality investments, but it is often more challenging for individuals to complete the rigorous analysis required to add high-caliber direct real estate investments to their portfolios. Fortunately, the investment landscape for accredited investors is changing. Platforms like Cadre are enabling more efficient, institutional-caliber participation in direct real estate investments, allowing accredited investors to more closely apply the endowment model to their own portfolios.

  1. Northern Trust, “Illuminating the Returns of Elite Investors,” April, 2014, https://www.northerntrust.com/documents/commentary/investment-commentary/illuminating-returns-elite-investors.pdf ↩︎

  2. NACUBO, Public NTSE Tables, January 30, 2019, https://www.nacubo.org/Research/2019/Public-NTSE-Tables ↩︎

  3. Historical university endowment reports ↩︎

  4. Benchmark 60/40 weighting applies 60% to the S&P 500 and 40% to the Barclays US Aggregate Bond Index, rebalanced annually 30th June (endowment fiscal year-end) ↩︎

  5. The National Bureau of Economic Research, “The Endowment Model and Modern Portfolio Theory∗,” April 23, 2018, https://www.nber.org/2018LTAM/yang.pdf ↩︎

  6. Guru Focus, “David Swensen: His Model and Execution Made Yale Richer,” February 7, 2018, https://www.gurufocus.com/news/637231/david-swensen-his-model-and-execution-made-yale-richer ↩︎

  7. The National Bureau of Economic Research, “The Endowment Model and Modern Portfolio Theory∗,” April 23, 2018, https://www.nber.org/2018LTAM/yang.pdf ↩︎


Educational Communication

The views expressed above are presented only for educational and informational purposes and are subject to change in the future. No specific securities or services are being promoted or offered herein.

Not Advice

This communication is not to be construed as investment, tax, or legal advice in relation to the relevant subject matter; investors must seek their own legal or other professional advice.

Performance Not Guaranteed

Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections are not guaranteed and may not reflect actual future performance.

Risk of Loss

All securities involve a high degree of risk and may result in partial or total loss of your investment.

Liquidity Not Guaranteed

Investments offered by Cadre are illiquid and there is never any guarantee that you will be able to exit your investments on the Secondary Market or at what price an exit (if any) will be achieved.

Not a Public Exchange

The Cadre Secondary Market is NOT a stock exchange or public securities exchange, there is no guarantee of liquidity and no guarantee that the Cadre Secondary Market will continue to operate or remain available to investors.

Opportunity Zones Disclosure

Any discussion regarding “Opportunity Zones” ⁠— including the viability of recycling proceeds from a sale or buyout ⁠— is based on advice received regarding the interpretation of provisions of the Tax Cut and Jobs Act of 2017 (the “Jobs Act”) and relevant guidances, including, among other things, two sets of proposed regulations and the final regulations issued by the IRS and Treasury Department in December of 2019. A number of unanswered questions still exist and various uncertainties remain as to the interpretation of the Jobs Act and the rules related to Opportunity Zones investments. We cannot predict what impact, if any, additional guidance, including future legislation, administrative rulings, or court decisions will have and there is risk that any investment marketed as an Opportunity Zone investment will not qualify for, and investors will not realize the benefits they expect from, an Opportunity Zone investment. We also cannot guarantee any specific benefit or outcome of any investment made in reliance upon the above.

Cadre makes no representations, express or implied, regarding the accuracy or completeness of this information, and the reader accepts all risks in relying on the above information for any purpose whatsoever. Any actual transactions described herein are for illustrative purposes only and, unless otherwise stated in the presentation, are presented as of underwriting and may not be indicative of actual performance. Transactions presented may have been selected based on a number of factors such as asset type, geography, or transaction date, among others. Certain information presented or relied upon in this presentation may have been obtained from third-party sources believed to be reliable, however, we do not guarantee the accuracy, completeness or fairness of the information presented.