A wave of small and mid-sized endowments are expected to turn to an OCIO as they navigate the changes the Trump administration has brought to the U.S. tax code and federal funding.

The One Big Beautiful Bill Act introduced a sliding scale of tax hikes for endowments dependent on assets under management per student. As II wrote at the time in Essential Allocator, large endowments with more than $2 million per student like Harvard’s and Yale’s will now have to pay an 8 percent excise tax on net investment income, while endowments with $750 thousand to $2 million per student like Notre Dame and Dartmouth will pay 4 percent. Foundations and small schools with fewer than 3,000 tuition-paying students avoided any tax increase.

The version that eventually made it through Congress was a stark improvement on the one initially passed by the House, which would have introduced greater tax burdens on endowments of all sizes.

The tax changes, in addition to federal funding freezes and their impact on endowment spending, mean that endowments of all sizes are reevaluating their investment strategies to maintain both long-term growth and short-term liquidity.

Universities are likely to adopt more cautious liquidity management strategies like increasing cash reserves or cutting expenses, repositioning their endowment holdings, and participating in the secondary market, according to Agnes Ugoji, analyst at Cerulli Associates, who added that although large institutions may weather the storm, mid-sized and smaller endowments that lack scale and resources could fall behind.

The new report from Cerulli has found that these smaller institutions are likely to rely on outsourced chief investment officers to stay on top of the changes. OCIO use among endowments is already greatest in endowments between $100 million and $500 million in AUM, and the research has found that a majority of OCIO providers expect endowment clients to be the biggest driver of growth in the coming years.

The sought-out services from OCIO providers may include tax expertise, cash flow management systems, and board education, Cerulli said.

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