Returns on Educational Endowments Fall Sharply in 2012, Study Finds

Returns on Educational Endowments Fall Sharply in 2012, Study Finds

Endowments at 831 U.S. colleges and universities generated an average return of -0.3 percent in the fiscal year that ended June 30, 2012, a steep decline from the previous year's average return of 19.2 percent, a new report from the Commonfund Institute finds.

Conducted in partnership with National Association of College and University Business Officers, the NACUBO-Commonfund Study of Endowments found that the largest endowments — those with assets in excess of $1 billion — produced the highest FY2012 return, averaging 0.8 percent, while the smallest endowments — those with assets between $51 million and $100 million — returned -1.0 percent on average. In terms of asset class, the study found that fixed-income investments generated the highest average return, 6.8 percent, while international equities produced the lowest, -11.8 percent. Other asset classes produced middling results, with domestic equities returning 2 percent on average, alternative strategies returning 0.5 percent, and short-term securities/cash/other returning 0.2 percent.

In addition, the survey found that the average spending rate for participating institutions was 4.2 percent, a slight drop compared to the 4.6 percent rate reported in 2011, and that 39 percent of institutions reported receiving less in gifts than in the previous year, while 41 percent reported an increase in gifts. Correlated with the size of an institution's endowment, gifts were highest among institutions with assets over $1 billion.

"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."

"Educational Endowments Earned Investment Returns Averaging -0.3% in FY2012, Down Sharply From 19.2% in FY2011." National Association of College and University Business Officers Press Release 02/01/2013.