Investing January 29, 2015

Higher Education Endowments See Strong 2014 Returns

The 2014 NACUBO-Commonfund Study of Endowments reveals higher education institutions were highly invested in alternatives.
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Final data gathered from 832 U.S. colleges and universities for the 2014 NACUBO-Commonfund Study of Endowments (NCSE) show that these institutions’ endowments returned an average of 15.5% (net of fees) for the 2014 fiscal year (July 1, 2013 to June 30, 2014).

This is up from 11.7% for the 2013 fiscal year. The 832 institutions participating in this year’s study represented $516 billion in endowment assets.

Domestic equities generated the highest return in FY2014, at 22.8%, followed by international equities, at 19.2%. Alternative strategies returned 12.7%, fixed income returned 5.1% and short-term securities/cash/other returned 1.9%. Returns for all five asset classes were higher in FY2014 than they were in the previous fiscal year.

Asset allocation among participating endowments was little changed over the course of the fiscal year. Participating endowments reported the following asset allocation in FY2014:

  • Domestic equities – 16%;
  • Fixed income – 10%;
  • International equities – 18%;
  • Alternative strategies – 53%; and
  • Short-term securities/cash/other – 3%.

When viewed across the size cohorts, study data show significant differences in asset allocation. For example, while institutions with assets greater than $1 billion allocated 13% of their portfolios to domestic equities and 8% to fixed income, institutions with assets less than $25 million allocated 43% and 26% to these asset classes, respectively. The largest endowments allocated 57% of their portfolios to alternative strategies, while at the other end of the size spectrum the smallest endowments allocated only 10%.

Fourteen percent of NCSE participants reported they seek to include in their portfolios investments that rank high on environmental, social and governance (ESG) criteria. Twenty-five percent said they exclude or screen out investments that are inconsistent with the institution’s mission, while 15% said they allocate a portion of the endowment to investments that further the institution’s mission. Just 6% of institutions indicated their board had voted to exclude responsible investing considerations, while 75% said their board had not taken similar action. Seven percent reported they were considering changing their investment policy to include ESG integration, while 69% said they were not doing so.

Additional materials in support of the NCSE are available on the NACUBO website.

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