MIT has some of the smartest people on earth. It pays its endowment managers more than its president. Last fiscal year they earned 10.3%. A plain S&P 500 index fund earned more than twice that. Spencer Jakab lays out the lesson in his Markets column in the Journal, and it's a cheap one. The tuition is free.
Harvard and Stanford did better, up 27.1% and 31.7%. Both held big SpaceX stakes bought before its IPO. The University of North Carolina had more than a tenth of its money in SpaceX and did better still. Those are one-year lightning strikes. Over one, three, 10 and 20 years, the S&P 500 beat the average endowment every time. That's by the NACUBO Commonfund numbers in the paper's chart, through June 2025.
The reason is access, and access is expensive. Endowments over $5 billion put 63% of their money into private equity, hedge funds and venture funds, which the industry calls alternatives. Schools under $50 million put only 13% there. Investing veteran Richard Ennis says a 60% alternatives mix costs about 3% a year. At Harvard, bonds are 3% of the pot and public stocks held directly are 14%. Private funds also update their values rarely, so the portfolio looks calmer than it is.
Now it's your turn
Here's the part that matters to you. Those same funds want a new customer. Industry lobbyists want 401(k) plans to be allowed to offer these alternative funds. Robinhood (HOOD) this year listed a Venture Fund that holds stakes in OpenAI, Oura and SpaceX. CEO Vlad Tenev calls it fixing an old inequity in the markets. The fund's expense ratio, the yearly fee taken out of your money, is 3.1%. That's 100 times the cost of an S&P 500 index fund. Jakab's line is that even people who couldn't get into MIT can spot the problem.
Our read
This is an Investments/Risk story, IN04, and it's about fees. A 3.1% fee has to be earned back every single year before you make a dime. The well-paid managers at the big endowments mostly didn't beat the index over a decade. Rare valuations don't lower risk. They hide it. The S&P 500 index fund Jakab keeps pointing to is the kind our books use, like VOO, held at weight in 6 books. Nothing added. We don't own Robinhood or its fund, and nothing in this column makes us want to.
For your own plan, the one thing to look at is the expense ratio on each fund in your 401(k). It's printed on the plan's fund sheet. The one check this week is to find any fund near 1% and ask what it does that an index fund can't. If a private markets option shows up on your menu, read the fee line first. A 3% fee a year, every year, is a deep hole to climb out of. Harvard can afford a vanity fund. A retirement account can't. The cheap umbrella keeps you just as dry when the rain comes.