College Endowments See Returns Plummet In FY2012

Feb 4 2013 | 2:10pm ET

U.S. college and university endowments saw their average returns plummet in fiscal 2012, losing 0.3% compared to a gain of 19.2% in FY2011.

The figures are found in the latest NACUBO-Commonfund Study of Endowments which evaluated data from 831 colleges and institutions (306 public and 525 private) representing assets worth $406.1 billion.

Alternative investments returned 0.5% for endowments in fiscal 2012 (from July 1, 2011 to June 30, 2012). This was neither the best nor the worst performance by an asset class—those distinctions went to fixed-income investments, up 6.8%, and international equities, down 11.8%, respectively.

This year's data show institutions increased their allocation to alternatives by one percentage point to 54%  in FY2012. It also showed the larger the endowment, the bigger the allocation to alternatives: endowments in excess of $1 billion reported a 61% allocation to alternative strategies.

Those strategies included private equity (LBOs, mezzanine, M&A funds and international private equity); marketable alternatives (hedge funds, absolute return, market neutral, long/short, 130/30, event-driven and derivatives); venture capital; private equity real estate (non-campus); energy and natural resources (oil, gas, timber, commodities and managed futures); and distressed debt.

Longer-term, the endowments recorded better results: 10-year returns for FY2012 were 6.2%, up from 5.6% in  FY2011. Trailing three-year returns averaged 10.2% and trailing five-year returns averaged 1.1%.

The largest endowments, those with $1 billion or more, were the best performers in FY2012, returning 0.8%. Institutions with assets between $51 and $100 million reported the worst results, losing 1.0%.

"This year's data show the re-emergence of a number of long-term trends in the sector," said NACUBO President and CEO John D. Walda and Commonfund Institute Executive Director John S. Griswold in a joint statement. "Over the years, with the exception of periods such as the recent economic crisis, institutions with the largest endowments have reported the highest one-year returns. This trend can once again be seen in this year's data, as well as data for trailing periods. We attribute this outperformance to a number of factors: well diversified portfolios with an equity bias, the ability to make long-term commitments to less liquid strategies, access to top-tier investment managers, and greater resources, including larger staffs, leading-edge technology and experienced investment committees."

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