US college and university endowments recently topped $547 billion—and 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?
US College Endowments Are Worth Hundreds of Billions
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. That’s an increase of 3% from the prior year. In 2016, the country’s five largest university endowments totaled more than $118 billion.
Endowments are essential components for the operation of any university or college. They’re 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 country’s flagship institutions are doing just that: investing some of their endowment into cryptocurrency assets and blockchain companies.
Major College Endowments Are Investing In Cryptocurrency
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 University’s 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 don’t 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.
It’s 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.
Here’s How Top College Endowments Make Major Investments in Crypto
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. It’s 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, aren’t investing in cryptocurrency directly per se. Endowment managers aren’t hopping on a cryptocurrency exchange and trading coins. Instead, they’re 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 market’s 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 endowment’s total portfolio.
Furthermore, Liew said that if it weren’t for cryptocurrency’s recent run of bad press, endowment managers wouldn’t give investing in the asset class a second thought. Looking at crypto strictly “by the numbers” in terms of returns, Liew says it would fit inside any endowment portfolio.
In other words, it’s the culture around cryptocurrency that’s putting off many institutional investors. Setting aside crypto’s 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.
Could Endowment Investments in Crypto Spur the Next Bull Market?
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 market’s long-term performance. For example, Fidelity is now helping their clients invest in cryptocurrency.
