Returns on Educational Endowments Fell in FY19, Study Finds

Returns on Educational Endowments Fell in FY19, Study Finds

The endowments of nearly eight hundred U.S. colleges and universities returned an average of 5.3 percent, net of fees, in the fiscal year that ended June 30, 2019, down from the 8.2 percent recorded in FY18, a report from the National Association of College and University Business Officers and TIAA finds.

According to the 2019 NACUBO-TIAA Study of Endowments (summary, 11 pages, PDF), despite two consecutive years of declines, the average ten-year return was 8.4 percent, up from 5.8 percent in FY18 and for the first time in a decade exceeding institutions' long-term objective of 7 percent. Due in part to strong ten-year returns, three-quarters of survey respondents reported spending more from their endowments in FY19 in support of students and faculty, with an average increase of more than $2 million. Total endowment dollars spent by all respondents increased 8 percent on a year-over-year basis, to more than $22.6 billion, with 49 percent of that funding allocated to student financial aid, 17 percent to academic programs, 11 percent to faculty support, and 7 percent to campus facilities.

The study also found that lower market returns in FY19 accounted for the decline in the average endowment return and that the largest institutions saw the highest average return (5.9 percent), driven by greater exposure to buyouts and venture capital investments. Indeed, the best-performing endowment asset classes in FY19 were venture capital (13.4 percent), private equity (10.2 percent), and U.S. equities (8.2 percent), while portfolios with greater exposure to international equities tended to underperform.

"The jump in spending from endowments last year shows once again the value of college and university endowments in supporting students and their access to a high-quality education," said NACUBO president and CEO Susan Whealler Johnston. "These endowments help make opportunity available to college and university students and ensure the strength of academic programs that prepare them for work and life."

"U.S. Educational Endowments Report 5.3 Percent Average Return in FY19." National Association of College and University Business Officers and TIAA Press Release 01/30/2020.