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IT’S THAT TIME of year again, when college endowments report their results for the recently completed fiscal year. This year’s numbers were unusual and carry lessons for individual investors.
For fiscal year 2026, which ended June 30th, some schools reported extraordinary returns. The University of North Carolina’s endowment reported a gain of nearly 38%. Washington University notched a return of more than 37%. And Stanford University’s endowment gained almost 32%.
Those are strong numbers, but it was a year of haves and have-nots. The median return was a much more modest 16.1%, according to consulting firm Cambridge Associates. And some schools trailed badly. MIT’s endowment, which has historically been near the top of the leaderboard, returned just 10.3%.
Why the disparity? The explanation, in short: SpaceX. Some schools—but not all—had invested in the company years before its public offering. Some had purchased shares directly, while others had exposure through venture capital funds. So when SpaceX held its IPO earlier this year at a valuation of nearly $2 trillion, these schools experienced windfalls. That explains the outstanding results at UNC, WashU and Stanford, and it explains why the median school, which had little or no exposure to SpaceX, put up much less dramatic results.
What should we conclude from this? On the one hand, this seems to validate stock pickers’ argument that the right picks can make all the difference. It also seems to support those lobbying for a rule change to allow private funds into workplace 401(k)s. Advocates of this move talk about democratizing access to investments, and the impact of SpaceX certainly aligns with that argument.
Despite some endowments’ success with this strategy, though, my recommendation is unchanged: For virtually all investors, I would still opt for the simplicity of index funds and would steer clear of private funds, including hedge funds, private equity and venture capital.
When it comes to private funds, there are four fundamental challenges which are well understood. For starters, they’re expensive. The traditional private fund structure involves a management fee which is typically between 1% and 2%. On top of that, the manager collects a performance fee—usually 20% of the profits each year. Funds like the Robinhood Ventures Fund (ticker: RVI) offer access to a basket of private companies through a publicly-traded vehicle, and they’re similarly expensive. This fund charges more than 3%. In contrast, funds tracking the S&P 500 charge as little as 0.03%. So cost is one key factor.
Private funds can also be tax-inefficient. Because they’re actively managed, the level of trading inside these funds can be significant. That leaves investors’ tax bills exposed to the whims of fund managers. A recent roundup by research firm Morningstar illustrates how investors in actively-managed mutual funds can face unpleasant tax surprises. Though the mechanism is different, the same risk applies to investors in private funds.
Private funds also carry fundamentally more risk, because they aren’t required to undergo the same level of scrutiny as publicly-traded funds. That provides more room for malfeasance.
And finally, private funds are generally illiquid, limiting withdrawals to periodic windows throughout the year. These restrictions have been problematic even for large university endowments, forcing them to sell investments at below-market prices. For individual investors, this sort of illiquidity could be an even larger problem. In my view, an asset that can’t be sold on demand has limited practical value, however attractive it may appear on paper.
Those are some of the more commonly cited challenges with private funds. But this year’s endowment returns highlight another issue: The performance of private funds is highly variable, and that’s because the landscape of investments outside of public markets is so idiosyncratic. At the University of North Carolina, for example, half of the endowment’s returns last year came solely from its SpaceX stake. That was fortunate. But unfortunately, there’s no reliable formula to repeat that kind of success.
It’s for that reason, I think, that endowment returns, on average, have been middling. According to data from the National Association of College and University Business Officers (NACUBO), the average college endowment has gained 10.0% per year over the past three fiscal years. In contrast, an investor in a simple publicly-traded stock-bond fund like the Vanguard Balanced Index Fund, would have earned 12.5% per year over that same time period.
To be sure, endowments have delivered better returns than publicly-traded alternatives in other time periods. Over the past five years, for example, endowments in the NACUBO database have beaten that Vanguard fund by about one percentage point per year. The issue, though, is that there’s no pattern to these returns. If private funds start the year encumbered by high fees, tax-inefficiency and illiquidity, then they need to deliver returns that are that much better just to stay even. And there’s no guarantee that this will be the case.
It’s for these reasons that I continue to recommend the simplest of investments for portfolios of all sizes.
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam’s Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
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