Cerulli research finds endowment assets are expected to grow 7.9% annually over the next five years, the highest growth rate of any institutional channel. For traditional asset managers to capture the growth of the endowment channel, they will need to be highly targeted in their approach to winning mandates, according to the latest Cerulli Edge—U.S. Institutional Edition.

For many traditional asset managers, large endowments (those with more than $1 billion in assets under management (AUM)) represent the best opportunity. Large endowments account for just 4.5% of total endowments in the U.S.; however, they collectively manage roughly 78% of the assets in the channel.

A targeted approach to distribution and the right product mix will help traditional asset managers win mandates from this sizable asset pool. According to the research, large endowments have relatively sizeable allocations to U.S. (8.8%) and non-U.S. (9.3%) equities, as well as fixed income (9.5%), and slightly more than one-third of endowments (35%) expect to increase their allocations to developed non-U.S. equity and U.S. investment-grade fixed-income strategies over the next 24 months.

Traditional asset managers may also look to outsourced chief investment officer (OCIO) providers to capture endowment assets. Nearly half of endowments (44%) used an OCIO provider in 2023, a figure that has remained relatively stable since 2020.

“The growth in endowment assets can be intriguing for traditional managers looking to expand their institutional footprint,” says Chris Swansey, associate director. “However, managers will have to overcome several challenges to make headway, including increased demand for alternative investments and establishing relationships with hard-to-reach OCIO providers.”

“While a sizable share of assets is concentrated among the largest endowments, asset managers still can effectively grow endowment asset marketshare with the right approach to product development and channel distribution,” concludes Swansey.