Returns Down for Educational Endowments

June 13, 2013 (PLANSPONSOR.com) – The investment returns earned by educational endowments during 2012 were down compared to 2011.

The “2012 NACUBO-Commonfund Study of Endowments” showed endowments for U.S. colleges and universities returned an average of -0.3% (net of fees) for the 2012 fiscal year (July 1, 2011, to June 30, 2012). This was a large decline from the average return of 19.2% for the 2011 fiscal year.

However, over the longer term, the study found 10-year returns were 6.2% in 2012 compared with 5.6% in the 2011 fiscal year. This suggested to the study authors that long-term performance for many institutions continues to improve.

“This year’s data show the re-emergence of a number of long-term trends in the sector,” said John D. Walda, NACUBO president and CEO, and John S. Griswold, Commonfund Institute executive director, in a joint statement. “Over the years, institutions with the largest endowments have reported the highest one-year returns. This trend can be seen once again in this year’s data, as well as data for the trailing periods.”

Walda and Griswold said this performance is due to a number of factors including:

  • Well-diversified portfolios with an equity bias;
  • The ability to make long-term commitments to less-liquid strategies;
  • Access to top-tier investment managers; and
  • Greater resources including larger staffs, leading-edge technology and experienced investment committees.

Walda and Griswold observed that the strong performance reported for fixed-income investments helped both large and small endowments. While endowments with assets over $1 billion reported the smallest fixed-income allocation at 9%, they realized the highest return from this asset class, an average of 9.1%. At the other end of the size spectrum, endowments with assets under $25 million benefited from the largest fixed-income allocation at 29%, despite reporting the lowest return, an average of 6.1%.

Decreases in gifts and donations to endowments have been a cause of concern in the aftermath of the economic crisis, according to the report. In the 2012 fiscal year, 39% of institutions reported that they received less in gifts than in the previous year, while 41% reported an increase in gifts. The median total of new gifts was $2.2 million in the 2012 fiscal year, while the average total of new gifts was $8 million. Gifts were correlated with the size of the institution’s endowment. Both median and average gifts were the highest among institutions with assets over $1 billion.

Data for the study was gathered from 831 U.S. colleges and universities. Information about how to purchase a copy of the report can be found here.

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