Returns on Educational Endowments Robust in FY2014, Survey Finds

The endowments of 832 U.S. colleges and universities returned an average of 15.5 percent, net of fees, in the fiscal year that ended June 30, 2014, up from the previous year's return of 11.7 percent, a report from the Commonfund Institute and the National Association of College and University Business Officers finds.

According to the 2014 NACUBO-Commonfund Study of Endowments, returns on educational endowments of various sizes ranged from 16.5 percent for institutions with assets of more than $1 billion to approximately 15.2 percent for those with assets of between $51 million and $100 million. The report also found that institutions with endowment assets of more than $1 billion recorded the highest returns over three (9.5 percent), five (12.1 percent), and ten years (8.2 percent).

Across all asset classes, returns were higher in FY2014 than in 2013, with domestic equities generating the best return (22.8 percent), followed by international equities (19.2 percent), alternative strategies (12.7 percent), fixed income (5.1 percent), and short-term securities/cash/other (1.9 percent). Among alternative strategies, which accounted for 51 percent of asset allocations — down from 53 percent in 2013 — venture capital provided he best return, 23.3 percent, up significantly from last year's 6.1 percent. The survey also found that while asset allocations remained little changed in 2014, they differed by endowment size, with allocations to traditional asset classes such as domestic equities and fixed income higher for smaller endowments and allocations to alternative strategies higher among larger endowments.

Commonfund Institute executive director John S. Griswold noted that the data on which the report is based indicate a growing emphasis on risk management among the institutions surveyed. "We have observed a clear increase in the number of institutions employing risk limits and guidelines and applying stress tests in managing their portfolios," said Griswold. "Institutions appear to be remaining vigilant with an eye to avoiding a repetition of their experience in the financial crisis of 2007-2009."