Posted on January 17, 2006

U.S. Educational Endowments Grew in 2005, Study Finds

U.S. educational endowments in 2005 registered returns that compared favorably to returns over the past five years, a new study from the Wilton, Connecticut-based Commonfund Institute finds.

The fifth annual Commonfund Benchmarks Study found that educational endowments and foundations supporting education reported average annual total returns of 9.7 percent in 2005. That compares with reported average annual total returns of 14.7 percent for fiscal year 2004, 3.1 percent for 2003, -6 percent in 2002, -3 percent in 2001, and 13.2 percent in 2000. Moreover, benchmark leaders in the top decile and top quartile reported returns in excess of 13.7 percent and 11.2 percent, respectively. Among public and private institutions, average returns were 10.4 percent and 10 percent, respectively. Respondent institutions reported average three- and five-year returns of 9.6 percent and 3.5 percent, respectively, with larger institutions (assets of more than $1 billion) reporting significantly higher three- and five-year returns (11.6 percent and 5.1 percent) than institutions with less than $10 million in assets (9.5 percent and 3.3 percent).

The survey of 729 private college and university endowments, public educational endowments, independent school endowments, and private foundations also found that expectations for the coming year are somewhat less rosy, with the average return for FY 2006 projected to be 8 percent.

"This year's study shows that benchmark leaders achieved significantly higher returns by increasing allocations to alternative strategies and reducing allocations to domestic equity in the past year," said Commonfund Institute executive director John S. Griswold. "This indicates institutions' greater need for special expertise in due diligence, risk management, and proper diversification of an alternatives portfolio."