University Endowments Post Strong 2011 Returns

Jan 18 2012 | 10:07am ET

U.S. college and university endowments saw an average return of 19.8% (net of fees) on their investments in the fiscal year ending June 30, 2011 but have yet to recover completely from the financial crisis.

The numbers are preliminary and come from the Commonfund Institute and the National Association of College and University Business Officers, which gathered information from 284 colleges and universities in the United States.

“What stands out in these preliminary figures is the fact that, despite the positive returns of this year and last, endowments still have not completely recovered from the damage inflicted by the market declines that accompanied the 2008-09 credit crisis," NACUBO president and chief executive officer John D. Walda and Commonfund Institute Executive Director John S. Griswold said in a joint statement. 

"The average endowment is still at only 86% of its value in FY2007, using return data from past NCSE reports and a 5% spending rate and longer-term returns for five- and ten-year periods are only 5.0% and 5.5%, respectively—not significantly higher than the spending rate for many institutions. It will take several more years of positive returns for endowments to recover fully from the crisis."

The highest return reported was 31.8% while the lowest was 3.7%. Institutions in the study range from those with endowment assets under $25 million to those with assets in excess of $1 billion.

What emerged from this year’s sample was that funds of all sizes saw similar returns—institutions with $1 billion or more saw average returns of 20.2% in 2011, while those with less than $25 million saw average returns of 19.1%—but employed very different strategies to get those returns.

Institutions with assets in excess of $1 billion, for example, allocated roughly 12% to domestic equities while endowments with assets under $25 million allocated 41%.

Similarly, the two largest size cohorts reported average fixed-income allocations of 10% or less, while the three smaller size cohorts all had average fixed-income allocations in excess of 20%.

The biggest institutions allocated, on average, 58% to alternative strategies while the smallest allocated, on average, 9%.

In general, allocations to international equities and short-term securities/cash/other were more consistent across the size cohorts. (All allocations are reported on a dollar-weighted basis.)

NACUBO says the FY2011 effective spending rate for the group averaged 4.3% but for the two largest endowment cohorts—with assets over $500 million—the effective spending rates were 5.1% and 5.0%.

Final results for the study will be released in late January.

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