US college and university endowments recently topped $547 billionâand more college endowments are investing in cryptocurrency and blockchain than ever. As top college endowments put their money behind cryptocurrency, will other institutional investors on-the-fence about digital assets finally make their move?
At the end of the 2015 fiscal year, the market value of the endowment funds of colleges and universities in the U.S. was $547 billion, according to the National Center for Education Statistics. Thatâs an increase of 3% from the prior year. In 2016, the countryâs five largest university endowments totaled more than $118 billion.
Endowments are essential components for the operation of any university or college. Theyâre pools of money the school can spend on student programs, financial aid, research, construction projects, and salaries.
In addition to covering expenditures, college endowments can open further avenues for growth. As institutional investors, however, endowment managers typically prefer safe bets. At the same time, universities with plenty of cash can afford to risk some. And a few of the countryâs flagship institutions are doing just that: investing some of their endowment into cryptocurrency assets and blockchain companies.
In late 2017, U.S. News & World Report released its annual college rankings, including its list of the ten largest university endowments (based on FY 2016 data). Three of the five largest endowments, Harvard, Stanford, and MIT, have all reportedly invested millions of endowment dollars into cryptocurrency funds. Harvard Universityâs endowment is at the top, with $35,665,743,000. Third place goes to Stanford with a $22,398,130,000 endowment. And MIT takes fifth with a $13,181,515,000 endowment.
Even endowments that donât rank in the top 10 are making investments into cryptocurrency. Take the University of North Carolina, for example. With a smaller $3.9 billion endowment, UNC is also investing in digital currency and blockchain. Dartmouth, whose endowment reached an all-time high of $5.5 billion last year, made similar investments in cryptocurrency funds.
Itâs important to note that there are few details about the nature of these investments, specifically how much and in which currencies/funds. As private institutions, sources of funding for university endowments are not public information, and investment activities are typically tightly-guarded secrets. Indeed, there may be many more university and college endowments making small investments into cryptocurrency.
University endowments represent a highly influential class of investors. Perceived as typically risk-averse and long-term minded, moves by institutional investors tend to signal to private or retail investors that an asset is reliable enough to pursue. Itâs also a major sign to other institutional investors. If top colleges are making investments in crypto, others may feel compelled to follow suit.
The endowments of MIT, Harvard, and Stanford, however, arenât investing in cryptocurrency directly per se. Endowment managers arenât hopping on a cryptocurrency exchange and trading coins. Instead, theyâre investing in cryptocurrency funds managed by other financial institutions. Investing in funds lets endowments defray some of the risks. It also puts a kind of buffer between their portfolios and the crypto marketâs volatility.
That volatility notwithstanding, some experts claim university endowments are still under-allocated when it comes to cryptocurrency holdings. Johns Hopkins researcher and assistant professor of business Jim Kyung-Soo Liew conducted a risk analysis that puts ideal investment in crypto at 1.3 percent of an endowmentâs total portfolio.
Furthermore, Liew said that if it werenât for cryptocurrencyâs recent run of bad press, endowment managers wouldnât give investing in the asset class a second thought. Looking at crypto strictly âby the numbersâ in terms of returns, Liew says it would fit inside any endowment portfolio.
In other words, itâs the culture around cryptocurrency thatâs putting off many institutional investors. Setting aside cryptoâs unfortunate association with fraud and hacks, its perception as a highly speculative asset riding on enthusiasm and hype is anathema to the principles of institutional investors. Even if endowment managers are comfortable with the asset class, they may be put off by the investment vehicle. Managing different types of wallets, like a hot or cold wallet, and securing private keys entail heightened security risks.
Still, academia could represent a bridge between the risk-avoidance of institutional investors and the speculative enthusiasm of young, retail investors. College students are already investing in cryptocurrency themselves. And some of them are even allocating portions of their student loans to crypto holdings.
At the same time, major blockchain technology developers like Ethereum have set up blockchain facilities in university computing centers. Others, like Ripple, are establishing blockchain research funds for universities. And computer science programs and business schools across the U.S. are beginning to offer college courses in cryptocurrency and blockchain.
In short, crypto is already in the university, attending class. And investments from influential endowments, even small ones, could trigger the next bull market, spurring a new class of investors into a space that has been somewhat stagnant as of late.
One could argue that institutional investments in cryptocurrency represent significant optimism in the marketâs long-term performance. For example, Fidelity is now helping their clients invest in cryptocurrency.
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