What Average Really Looks Like — and Can Managed Futures Help? - Money For the Rest of Us Recap
Podcast: Money For the Rest of Us
Published: 2026-02-25
Duration: 28 min
Summary
This episode explores the underwhelming performance of university endowments over the past 25 years and examines how managed futures strategies could provide better returns, particularly in volatile markets.
What Happened
In the latest episode, host David Stein discusses the disappointing returns of university endowments as revealed in the 2025 Nakubo Common Fund Study. The average annualized return for these endowments over the past 25 years is only 6.6%, with a slight increase to 7.3% over the last 20 years, despite having access to sophisticated investment strategies and expert management. Stein emphasizes that starting valuations significantly impact long-term returns, pointing out that current market conditions are not vastly different from those in the past, yet the performance remains lackluster.
The episode also introduces managed futures as a potential solution to enhance portfolio performance, especially after their impressive returns in 2022 when many traditional assets like stocks and bonds suffered losses. Stein suggests that investors should consider incorporating managed futures into their portfolios, particularly given the expected lower returns from conventional investments. He notes that while some universities, like Princeton, are re-evaluating their return expectations, the overall trend shows a shift towards more conservative outlooks based on historical performance data.
Key Insights
- University endowments averaged only 6.6% annualized returns over 25 years, raising questions about investment strategies.
- Managed futures strategies delivered significant returns in 2022, contrasting sharply with falling stock and bond markets.
- Starting valuations and bond yields play crucial roles in determining long-term investment returns.
- Princeton University's decision to lower return expectations reflects a broader trend among institutions adjusting to new market realities.
Key Questions Answered
What were the average returns for university endowments over the past 25 years?
The average university endowment has returned about 6.6% annualized over 25 years, with a slight increase to 7.3% over the last 20 years. This performance is considered disappointing, especially given that these endowments are managed by skilled professionals with access to sophisticated investment strategies.
How did managed futures perform in 2022?
Managed futures strategies performed exceptionally well in 2022, achieving returns of 30% or more during a period when traditional assets like stocks and bonds were declining. This performance makes them a notable consideration for investors seeking to diversify and improve their portfolios.
What factors influence long-term investment returns?
David Stein emphasizes that starting valuations and bond yields significantly affect long-term returns. For instance, the price-to-earnings ratio of stocks and the yield on bonds in earlier periods compared to today can provide insight into expected future performance.
Why are university endowments adjusting their return expectations?
Princeton University recently cut its return expectation from 10.2% to 8%, citing a possibly aggressive outlook. This adjustment reflects a broader trend of universities and other institutions reevaluating their assumptions about investment returns in light of historical data.
What is the typical asset allocation for university endowments?
The average university endowment typically allocates about 31% to publicly traded equities, 45% to alternative strategies like private equity, 11% to fixed income, and 10% to real assets. This diversified approach aims to balance risk and returns while funding university operations.