What Is a Unitized Endowment Pool (UEP)?
Let me explain what a unitized endowment pool, or UEP, really is. It's a way for multiple endowments to invest together in one big pool of assets. Each endowment gets its own units in this pool, and you typically see returns calculated monthly. If a new endowment wants to join, they buy in by getting units valued as of a specific date.
Key Takeaways on UEPs
Think of a UEP as an investment tool for endowments where several groups put their money into the same set of assets. Each one owns units, and the value of those units is set based on when you buy in. It's a lot like mutual funds, but you can't get into them if you're not an endowment—they're not for the general public. By joining forces, endowments get better diversification. Plus, UEPs open doors to less liquid investments, tricky markets like emerging economies, and make it simpler to sell off illiquid stuff.
Understanding a Unitized Endowment Pool (UEP)
A UEP is basically like a mutual fund, but scaled up and just for endowments, not everyday investors. Even if a small endowment has a decent amount of cash, pooling with others can help with diversification. The units in a UEP keep everything separate, so each endowment knows exactly what they own. For instance, if a UEP is worth $10 billion with 100,000 units at $100,000 each, those units get divided among the participating endowments.
UEPs are one of three main ways endowments invest. Some go all in on UEPs, others hire outside managers directly, and the biggest ones often bring in internal teams to handle growth. A few mix all three approaches. The trend of using UEPs or external managers versus doing everything in-house comes and goes. After the 2007-2009 financial crisis, more mid- and large-sized endowments turned to outsiders to cut costs and manage risks better.
Benefits of a UEP
One big plus with some UEPs is access to less-liquid securities, like private equity or timberland stakes. These can offer good long-term returns, but they come with liquidity risks. A smaller endowment probably wouldn't touch these on their own without the expertise, and selling units in a UEP that includes them is often quicker than unloading the assets directly.
UEPs also tend to have more know-how in emerging-market equities and debt than an endowment's internal team might. Endowments usually hold some of these because they're investing for the very long haul—even longer than your average person saving for retirement. Many are willing to take on extra risk for higher rewards to outpace inflation, though that can be a drawback depending on your risk tolerance and timeline.
Fast Fact
Here's a quick note: Harvard University has the largest endowment, clocking in at $42 billion back in 2020.
What Are the Three Types of Endowments?
Generally, endowments come in three types: true endowments (also called permanent endowments), quasi-endowments (known as Funds Functioning as Endowments or FFE), and term endowments.
What Is a Unitized Investment?
A unitized investment is a pooled setup where you buy units in an investment vehicle, like a fund. Each investor owns a piece through their units, and these investments usually focus on a specific strategy or area.
What Is an Endowment?
An endowment is how non-profits structure investments from donations to generate returns that fund their operations over time.
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