The “One Big Beautiful Bill” introduces new excise tax tiers of 1.4 percent, 4 percent and 8 percent on net investment income for a select group of US endowments. While the legislation affects only a narrow segment of institutions, its implications for investment strategy and governance are significant.

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Through ongoing research and conversations with Chief Investment Officers and senior investment leaders, we examined how this change is influencing endowment investment programs.

Who is impacted?

Colleges and universities with fewer than 3,000 tuition-paying students remain exempt from the tax, and the reduction of the highest rate to 8 percent has limited the number of institutions most affected.

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The impact is concentrated among the largest endowments, including institutions such as Yale University and Princeton University, as well as notable cases like University of Notre Dame, which lost its previous exemption as a religious institution.

Where will the funding come from?

For affected institutions, meeting the new tax obligation will likely involve a combination of increased endowment spending and reductions to operating budgets, particularly for those also managing broader funding pressures.

How will this affect investment strategies?

Insights from investment leaders highlight several consistent themes:

• Limited impact on top-down asset allocation approaches
• Increased scrutiny of tax-inefficient hedge fund and private credit strategies
• A shift toward more tax-efficient hedge fund structures
• In some cases, a greater need for liquidity while maintaining or modestly increasing return expectations from select managers

An opportunity for tax expertise

The legislation has created demand for specialized tax advisory support. Many institutions report that few advisors have yet delivered clear value in this evolving area, creating an opportunity for a small group of tax experts to guide clients through increasingly complex requirements.

Impact on endowment investment talent

Despite the added complexity, the long-term outlook for endowment investment teams remains stable. While the tax introduces additional considerations, investment professionals continue to focus on mission-driven, patient capital strategies and are integrating tax analysis into their established investment frameworks.