MIAMI BEACH — Endowments are rethinking where they invest as they brace for weaker returns from traditional assets, and digital assets might be in their crosshairs.

At the iConnections conference on Tuesday, several chief investment officers said the playbook that drove gains over the past decade may not work as well in the next one. Equity valuations remain high, credit spreads are near historic lows, and private markets are crowded, leaving little room for error.

“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,” said Kim Lew, CEO and president of Columbia Investment Management Company.

Lower expected returns create a math problem. Private foundations, for example, must pay out about 5% of assets each year. Add operating costs, and the hurdle rate climbs. “If you don't earn returns of 8% the model doesn't work,” said Carlos Rangel of the W.K. Kellogg Foundation, one of the largest U.S. philanthropic foundations in the U.S.

That pressure is pushing investment teams to search further afield. Columbia's Lew said generating outperformance may require going “a little bit further on the risk curve” and exploring strategies they have not used before.

That search has, in some cases, led endowments into cryptocurrency markets that were once viewed as too volatile or operationally complex for traditional institutions, particularly endowment funds.

Early university investors such as Yale and Harvard backed crypto-focused venture funds years ago, gaining indirect exposure to digital assets through private vehicles. More recently, the approval of spot bitcoin and ether exchange-traded funds (ETFs) in the U.S. has offered a simpler route. Harvard University and Brown University, for example, have disclosed positions in both bitcoin and ether ETFs in their latest 13F filings.

However, even as these large funds are discussing crypto allocations amid tough returns from traditional assets, the digital asset sector has been, at least since the end of last year, tougher for investors.

Digital assets over the past year have failed to outperform broader equity markets and have gone through periods of steep volatility. Bitcoin fell 26% over the past year while the S&P 500 is up nearly 17% over the same period.

Nevertheless, these institutions typically invest with long time horizons and can likely tolerate short-term drawdowns in pursuit of longer-term gains. In fact, with bitcoin prices down nearly 50% since its October all-time high, while all other asset classes rose, these funds might be cautiously looking for underperforming assets such as crypto.

A sentiment pivot

While the allocations appear small relative to these giant funds' overall portfolios, the disclosures show how digital assets have moved from the fringe of institutional finance into the mainstream toolkit.

For endowments facing lower expected returns from stocks and bonds, crypto ETFs can serve as a high-risk, high-volatility satellite position.

Still, panelists made clear that the broader challenge extends beyond any single asset class. Many institutions are tempering expectations after years of strong market performance. Equity risk premiums look thin, private markets hold record amounts of unsold assets and macro uncertainty remains elevated.

“I think it's a really hard setup for outstanding returns,” Columbia Lew said.