The endowments of more than eight hundred U.S. colleges and universities returned an average of 2.4 percent, net of fees, in the fiscal year that ended June 30, 2015, down from an average return of 15.5 percent the previous year, a report from the Commonfund Institute and the National Association of College and University Business Officers finds.
According to the 2015 NACUBO-Commonfund Study of Endowments, the average return in FY2015 was the lowest since the -0.3 percent reported for FY2012, and it brought the ten-year average down from 7.1 percent to 6.3 percent — well below the median 7.5 percent return that most endowments say they need to maintain their purchasing power after spending, inflation, and investment management costs. At the same time, while the average effective spending rate for institutions in the survey fell slightly from 4.4 percent in FY2014 to 4.2 percent, 78 percent of survey respondents reported an increase in endowment spending, with the median increase coming in at 8.8 percent, well above the rate of inflation.
The survey also found that the highest average return, 4.3 percent, was reported by institutions with assets of more than $1 billion, down from 16.5 percent in 2014, while returns for endowments of other sizes ranged from 1.9 percent to 2.8 percent. Returns generally were correlated with endowment size, with the exception of endowments under $25 million, which reported an average return of 2.3 percent.
In addition, returns were lower across all asset classes, with domestic equities generating the highest return, at 6.4 percent, down from 22.8 percent in 2014, followed by alternative strategies (1.1 percent, down from 12.7 percent), fixed income (0.2 percent, down from 5.1 percent), short-term securities/cash/other (0 percent, down from 1.9 percent), and international equities (-2.1 percent, down from 19.2 percent).
"FY2015's lower average ten-year return is a great concern," said NACUBO president and CEO John D. Walda. "On average, institutions derive nearly 10 percent of their operating funds from their endowments. Lower returns may make it even tougher for colleges and universities to adequately fund financial aid, research, and other programs that are very reliant on endowment earnings and are vital to institutions’ missions. But it is important to note that even with the lower returns, institutions are clearly showing a tremendous commitment to supporting valuable programs with increased endowment dollars."