Endowments and foundations are exploring cryptocurrency investments as they anticipate lower returns from traditional assets. High equity valuations and crowded markets are prompting institutions to diversify into bitcoin and ether ETFs. Speakers at a recent conference highlighted the need to venture further on the risk curve to sustain payout models.
Endowments are adjusting their investment strategies in response to expected weaker returns from traditional assets, with some turning to digital currencies for diversification. At the iConnections conference in Miami Beach on Tuesday, chief investment officers discussed how high equity valuations, tight credit spreads, and crowded private markets are limiting opportunities in stocks, bonds, and private equity.
Kim Lew, CEO and president of Columbia Investment Management Company, noted, “I think in general, our expectations are that for all of the traditional asset classes that we've invested in, we sort of believe this is both return compression and probably Alpha compression.” This outlook poses challenges for institutions like private foundations, which must distribute about 5% of their assets annually. Carlos Rangel of the W.K. Kellogg Foundation explained that, including operating costs, returns of at least 8% are necessary to maintain the model. “If you don't earn returns of 8% the model doesn't work,” Rangel said.
To generate outperformance, Lew indicated that Columbia may need to go “a little bit further on the risk curve” and explore new strategies. Cryptocurrency has emerged as one such option, once considered too volatile for endowments. Early adopters like Yale and Harvard invested in crypto-focused venture funds years ago for indirect exposure.
The approval of spot bitcoin and ether exchange-traded funds (ETFs) in the U.S. has simplified access. Recent 13F filings show Harvard University and Brown University holding positions in both bitcoin and ether ETFs as small, high-volatility satellite investments. These allocations, though modest relative to overall portfolios, signal digital assets' integration into mainstream institutional tools.
Despite bitcoin's 26% decline over the past year—contrasting with the S&P 500's 17% gain—and a nearly 50% drop from its October all-time high, endowments' long investment horizons allow them to weather short-term volatility for potential longer-term gains. Panelists emphasized broader challenges, with Lew adding, “I think it's a really hard setup for outstanding returns.”