For as long as I can remember, I’ve been crazy about endurance sports. Marathons, Ironman triathlons, high-altitude mountain climbing—you name it and I want to read about it, watch it, or participate in it.

Believe it or not, as difficult as these events are to finish, the hardest part isn’t the race itself. It’s all the time, work, discipline, and dedication that goes into just getting to the starting line. Yet, in spite of this grueling regimen, the number of U.S. marathon finishers continues to reach new all-time highs.¹

There’s a similarly tough endurance training that goes on for nonprofits seeking to build a private equity program. I know this, too, from personal experience, having spent much of my career before Vanguard consulting on and building institutional private equity programs. The checklist of what needs to be considered is a long one, from illiquidity concerns and the impact of a private equity program on the total portfolio’s volatility, to the quality of access to managers and their fees.

While some notable nonprofits have added considerable value to their total portfolio returns by building out a private equity program,² many institutions underestimate the significant human-capital effort required to do so. For instance, one of the nonprofit university endowments I advised in my prior role had virtually no exposure to private equity but held a conviction in the investment approach. To build out this conviction, we hoped to have this client invest with private equity funds across a diversified set of investment strategies and geographies every year for the foreseeable future. In our job as consultant, this meant we would help the client look to make investments with approximately six to eight private equity firms in each of those years.

The course could be littered with obstacles

Now, this isn’t as easy as showing up on the doorstep of a private equity firm when it’s raising a new fund. Many institutions lack the connections to be invited to invest in the first place. In addition, the private equity fund manager may want you to be a value-added investor beyond just your capital and interest to invest. In the case of this university, it already had alumni at many top private equity firms. What’s more, it had an excellent reputation in life sciences and engineering, and emphasized positioned value for its funds through expertise and industry connections.

Even with alumni ties and value-add programs, this university waited a long time—years, in some cases—after the initial introductions to private equity firms led to an opportunity to invest. Our quick math at the time suggested the investment staff would be easily conducting dozens of meetings with managers, particularly early on. Even afterwards, its investment committee was expected to meet up to an additional ten times a year to make capital commitment decisions.

That said, let’s put this in the context of a marathon in which you’re hoping to compete. You’ve committed the significant time and effort to appropriately train.

You’ve been lucky enough to remain healthy. You’re ready to run 26.2 miles. You go to sign up and you’re asked to wait a few years for an opening. You do that, too—except when the time finally arrives, you’re told you’ll need connections in city hall so they can secure the race permits! But just as a barrier to entry hasn’t reduced interest in marathons, it also hasn’t reduced interest in private equity. In 2004, there were 3,034 private equity firms. By 2014, that number had more than doubled to 6,223.³

There’s one big difference in our analogy, however, that needs to be pointed out: the increase in the number of marathons and improvements in running technology allowed a first-time marathoner in 2014 the same chance of success as a runner in 2004.4

With private equity on the other hand, the results are more varied. Depending on the private equity fund(s) selected, institutions using PE investments may have successfully invested the right amount of time in the private equity due diligence process and may have had investment success. Others may have invested the same resources, yet their effort may have taken value away and added volatility depending on the PE fund(s) selected.5

Right about now, it would be fair to ask, “These institutions must have been rewarded at a portfolio level for all those years of training, right?” Well, not exactly. Figure 1 below compares the reported returns of the very largest higher-education endowments (more than $1 billion) which are members of the National Association of College and University Business Officers (NACUBO), with model Vanguard Institutional Advisory Services® (VIAS™) portfolios. These endowments, on average, had allocations to private equity greater than 20% while the VIAS model portfolios had no private equity exposure. Both the index and active VIAS model portfolios would have outperformed the NACUBO portfolios over one-, three-, five-, and ten-year periods.

It’s also important to note endowments with assets greater than $1 billion traditionally have the scale to support in-house investment staffs with deep expertise and industry connections in private equity.6 Smaller nonprofits may face more challenging circumstances—an uphill marathon, if you will—when choosing to commit to private equity investing because of fewer resources and lack of scale needed to build a diversified portfolio of private equity managers. In private equity investing, as in competing in marathons, the training is long and arduous, and even then it may not be enough to go the distance as, say, a portfolio of diversified low-cost index and active mutual funds might.

Comparison of annualized model portfolio returns as of June 30, 2016

Sources: 2016 NACUBO-Commonfund Study of Endowments (the “NACUBO Report”) and Vanguard.

Ninety-one institutions are represented in the “over $1 billion” NACUBO cohort. The NACUBO institutions’ portfolios included in this chart have the following investment allocation on average: 32% equities, 7% fixed income, 58% alternative strategies, and 3% in short-term securities/cash/other types of investments. Eighty-one percent of portfolios included in the NACUBO cohort reported rebalancing at least once in 2016. NACUBO performance data is shown net of fees. The NACUBO institutions’ portfolios performance was reported to NACUBO voluntarily by NACUBO member institutions and the performance reported may have been affected by changes in conditions, objectives, or investment strategies during the time period of performance displayed above. The fees deducted from NACUBO portfolios include: (i) management fees paid to direct asset managers for investment and management services, excluding performance fees which can vary widely and may not be indicative of expected rates for a given period; (ii) fund-of-fund fees, which represent aggregate blended management fee rates paid directly to fund-of-fund providers; (iii) advisory fees, which may include consulting fees in addition to fees for investment advisor services; (iv) fund operating expenses; and (v) custody fees. The NACUBO report notes that individual institutions may pay more or less in fees than is represented by the performance figures set forth above and that NACUBO’s fee deduction method is intended to provide a representation of average fee levels rather than what any individual institution pays. Institutions in the over $1 billion NACUBO cohort reported average fees of 1.30%, excluding performance fees, as noted above.

The VIAS model portfolio performance is net of advisory fees and underlying fund expenses. VIAS clients do not pay commissions or brokerage fees and the model results above therefore do not reflect the deduction of such fees. The performance for the VIAS model portfolios displayed above is net of an annual advisory fee of 0.02%, assessed quarterly at 0.005%. The 0.02% fee is based on a hypothetical portfolio value of $1 billion and is not based on actual portfolio performance. Advisory fees are subject to change dependent on portfolio size and as described in the VIAS advisory brochure. VIAS portfolios are only available to qualified institutional investors with assets starting at $2 million. For additional information on the VIAS advisory fee schedule, please refer to the VIAS advisory brochure.

The VIAS model portfolios assume the reinvestment of dividends and earnings, and the model portfolios assume a rebalancing method based on the following time-and-threshold approach VIAS uses with its clients. The model portfolios assume a quarterly review to determine the deviation from target weightings and corresponding quarterly rebalancing transactions. The VIAS model portfolio returns do not reflect actual trading and may not reflect the impact that material economic and market factors may have had on VIAS’ decision-making had VIAS actually managed client funds during the performance periods displayed above. VIAS portfolios are subject to fluctuations in value and investment losses.

The volatility of the VIAS model portfolios and 60/40 benchmark is materially different from that of the NACUBO institutions’ portfolios. In addition, the NACUBO institutions’ portfolios may have had during the time periods noted above, and may currently have, investment objectives that are not consistent with the VIAS model portfolios or with using a 60/40 benchmark.

See Notes below for important information about the VIAS Vanguard Index and VIAS concentrated active model portfolios and 60/40 benchmark.


² Wallick, Daniel W., Brian R. Wimmer, and Todd Schlanger, 2012. Assessing endowment performance: The enduring role of low-cost investing. Valley Forge, Pa.: The Vanguard Group.

³Source: Prequin.

5 Wallick, Daniel W., Douglas M. Grim, Christos Tasopoulos, and James Balsamo, 2015. The allure of the outlier: A framework for considering alternative investments. Valley Forge, Pa.: The Vanguard Group.

6 Wallick, Daniel W., Brian R. Wimmer, James J. Balsamo, 2014. Assessing endowment performance: The enduring role of low-cost investing. Valley Forge, Pa.: The Vanguard Group.


  • All investing is subject to risk, including the possible loss of the money you invest.
  • Diversification does not ensure a profit or protect against a loss.
  • Bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer’s ability to make payments.
  • Investments in stocks or bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk.
  • Advice services offered through Vanguard Institutional Advisory Services are provided by Vanguard Advisers, Inc., a registered investment advisor.
  • The performance data shown represent past performance, which is not a guarantee of future results. Investment returns and principal value will fluctuate, so investors’ shares, when sold, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at Performance data for periods of less than one year does not reflect the deduction of purchase or redemption fees that may apply. If these fees were included, performance would be lower. All other performance data are adjusted for purchase and redemption fees, where applicable. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.

60/40 index portfolio model (underlying fund returns as of September 30, 2017)


 60/40 concentrated active portfolio model (underlying fund returns as of September 30, 2017)

Performance is based on Admiral share class for all displayed funds except International Value performance is based on Investor share class returns. Total International Stock Index fund performance is based on Investor share class prior to November 29, 2010 and Admiral share class thereafter.

*Expense ratios are as of the fund’s most recent prospectus and are paid in addition to advisory fees.

Sources: Vanguard (for all returns and expense ratios shown) and Morningstar (for index returns underlying the 60/40 benchmark).

**Returns reflect Investor Shares until Admiral share class inception of November 29, 2010.

***Portfolio model returns reflect an equity allocation of 42% U.S. and 18% international equity through December 2014; 36% U.S. and 24% international equity thereafter; and a fixed income allocation of 30% U.S. fixed income through May 2013, 28% U.S. fixed income, and 12% international fixed income thereafter.

60/40 benchmark is 42% Spliced Total Stock Market Index (Dow Jones U.S. Total Stock Market Index (formerly known as the Dow Jones Wilshire 5000 Index) through April 22, 2005; MSCI US Broad Market Index through June 2, 2013; and CRSP US Total Market Index thereafter); 18% Spliced Total International Stock Index (Total International Composite Index through August 31, 2006; MSCI EAFE + Emerging Markets Index through December 15, 2010; MSCI ACWI ex USA IMI Index through June 2, 2013; and FTSE Global All Cap ex US Index thereafter); 40% Spliced Bloomberg Barclay’s US Aggregate Float Adjusted Bond Index (Bloomberg Barclays U.S. Aggregate Bond Index through December 31, 2009; Bloomberg Barclays U.S. Aggregate Float Adjusted Index thereafter) through May, 2013; thereafter, fixed income portion is 28% Spliced Bloomberg Barclay’s U.S. Aggregate Bond Index, 12% Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index Hedged; after December 2014 equity portion of the benchmark is 36% Spliced Total Stock Market Index, 24% Spliced Total International Stock Index.