Posted on November 8, 2011

Educational Endowments Returned 19.8 Percent in 2011, Survey Finds

The endowments of 284 U.S. colleges and universities returned an average of 19.8 percent (net of fees) in the fiscal year that ended June 30, 2011, a new report from the Commonfund Institute finds.

Conducted in partnership with the National Association of College and University Business Officers, the 2011 NACUBO-Commonfund Study of Endowments found that the highest-performing endowment in FY2011 returned 31.8 percent while the lowest returned 3.7 percent. The report also found that while the effective spending rate for the entire group was 4.3 percent, the spending rate for the two largest endowment cohorts (those with assets exceeding $500 million) was 5.1 percent and 5.0 percent, respectively.

Historically, larger endowments tend to significantly outperform smaller ones, but this year the spread was much tighter. While institutions with more than $1 billion in assets saw an average return of 20.2 percent, those with assets between $101 million and $500 million reported an average return of 19.9 percent, while those with assets of less than $25 million reported an average return of 19.1 percent.

In contrast, asset allocations varied widely among the institutions surveyed. For example, institutions with more than $1 billion in assets allocated just 12 percent on average to domestic equities, while those with endowments of less than $25 million allocated 41 percent of their assets to domestic equities; the two largest cohorts by asset size reported fixed-income allocations of 10 percent or less, while the three smaller cohorts all reported fixed-income allocations in excess of 20 percent; and institutions with more than $1 billion in assets allocated 58 percent of their assets to alternative strategies, while those with less than $25 million in assets averaged 9 percent to such strategies.

"What stands out in these preliminary figures is the fact that, despite the positive returns of this year and last, endowments still have not completely recovered from the damage inflicted by the market decline that accompanied the 2008-098 credit crisis," said NACUBO president and CEO John D. Walda and Commonfund Institute executive director John S. Griswold in a joint statement. "The average endowment is still at only 86 percent of its value in FY2007, using return data from past NCSE reports and a 5 percent spending rate, and longer-term returns for five- and ten-year periods are only 5.0 and 5.5 percent respectively — not significantly higher than the spending rate for many institutions. It will take several more years of positive returns for endowments to recover fully from the crisis."