The endowments of U.S. colleges and universities returned an average of -1.9 percent, net of fees, in the fiscal year that ended June 30, 2016, the lowest since the 2008-09 financial crisis, a report from the Commonfund Institute and National Association of College and University Business Officers finds.
Based on survey responses from more than eight hundred U.S. colleges and universities, the 2016 NACUBO-Commonfund Study of Endowments found that the average return in FY2016 was down 4.3 percentage points on a year-over-year basis, lowering the ten-year average from 6.3 percent to 5 percent, well below the median 7.4 percent that most institutions say is required to maintain their purchasing power after spending, inflation, and investment management costs. Even with the decline, however, 74 percent of institutions continued to increase spending from their endowments, at a median rate of 8.1 percent.
The survey also found that average returns were down the most for endowments between $101 million and $500 million (-2.4 percent), followed by endowments between $501 million and $1 billion (-2.2 percent), of more than $1 billion (-1.9 percent), between $51 million and $100 million (-1.8 percent), between $25 million and $50 million (-1.6 percent), and under $25 million (-1.0 percent). Among asset classes, fixed income returned the highest average return, at 3.6 percent, followed by short-term securities and cash (0.2 percent), while U.S. equities (-0.2 percent), alternative strategies (-1.4 percent), and non-U.S. equities (-7.8 percent) had negative returns.
"In spite of lower returns, colleges and universities continue to raise their endowment spending dollars to fund student financial aid, research, and other vital programs," said NACUBO president and CEO John D. Walda. "These substantial increases in spending from endowments demonstrate the deep commitment colleges and universities have to student access and success. Nonetheless, this year's results are cause for concern. Continued below-average investment returns will undoubtedly make it much more difficult for colleges and universities to support their missions in the future."
"Institutions are responding to these lower investment results by adjusting their average return expectations, which had become unrealistically high," said Commonfund Institute executive director William F. Jarvis. "At the governance level, the duty of boards and investment committees to balance current and longer-term demands, which is fundamental to the goal of maintaining equity among present and future generations of students, will be even more important in the next few years."