Endowment: Hedging Against Inflation

Some readers may recall my late-August post in which I posed the following question: how do we anticipate/plan for the effects of inflation on our endowment portfolios?

I posited that, as schools, we need to be mindful of the composition of our endowments, and that they should look different from pre-2008 models.

Bloomberg News carried a story today on endowment management, in which it was noted that cautious endowment managers are transitioning their endowments to include significant holdings in commodities as a means of hedging against inflation. George Washington University is considering selling its fixed-income assets as well as some stocks to expand its holdings in commodities - a segment which may end up representing some 30% of the university's portfolio in three to five years (commodities currently represent 13% of the portfolio). Notre Dame and Pepperdine have been hedging in similar ways.

Universities have been much more aggressive with their endowments than the vast majority of independent schools; this time around, though, we need to be with the universities rather than behind the proverbial 8-ball.

Any independent school considering a campaign for endowment in the near future (or, for that matter, any school that is simply interested in the well-being of its endowment) ought to give serious consideration to the composition of its endowment now. No one can predict the timing of inflationary effects on an endowment, so the better strategy is to position the endowment now to handle that kind of pressure.