Economic uncertainty and potential policy changes—including higher endowment taxes and cuts to federal funding—are prompting endowments to reassess investment strategies to balance long-term growth with near-term liquidity, according to the latest Cerulli Edge—U.S. Institutional Edition. Rising liquidity concerns are also creating new opportunities for third-party providers to support higher education institutions. 

The proposed endowment tax poses a direct liquidity strain by mandating additional spending, while federal funding reductions create indirect pressure as sponsoring institutions are forced to lean more heavily on their endowments. Together, these risks are driving institutions toward more conservative liquidity management, including larger cash reserves, expense reductions, repositioning of holdings, and potential activity in the secondary market. 

“Amidst an evolving landscape, universities may adopt more cautious liquidity management strategies,” said Agnes Ugoji, analyst at Cerulli. “While large institutions may weather the storm, mid-sized and smaller endowments lacking scale and internal resources could fall behind.” 

Cerulli projects that smaller institutions will increasingly turn to outsourced chief investment officers (OCIOs) to help manage complexity and strengthen investment outcomes. OCIO adoption is already highest among endowments with $100 million to $500 million in assets under management, and providers expect endowment clients to drive most of the industry’s growth over the next two years. 

“Firms that are well-equipped to assist with the ongoing challenges of today’s investment and regulatory environment should clearly emphasize these services to attract new clients,” Ugoji added. “Asset managers looking to tap into the endowment sector should focus on building strong relationships with OCIO providers, particularly during periods of financial and regulatory change.”