This is a steep decline from the FY2011 average return of 19.2%, according to the 2012 NACUBO-Commonfund Study of Endowments (NCSE). Over the longer term, ten-year returns for FY2012 were 6.2% compared with 5.6% in FY2011, suggesting that long-term performance for many institutions continues to improve.
Endowments with more than $1 billion in assets produced the highest FY2012 return, an average of 0.8%. The other categories with positive returns were endowments with assets between $501 million and $1 billion, which reported an average return of 0.4%, and endowments with assets less than $25 million, which reported an average return of 0.3%. All three of the midsized cohorts reported negative returns, the lowest being -1.0% among institutions with assets between $51 and $100 million. Institutions with assets between $101 and $500 million returned -0.7%, while those with assets between $25 and $50 million returned -0.5%.Viewed by asset class, the data show that fixed-income investments generated the highest return, an average of 6.8%, while international equities produced the lowest return, -11.8%. Domestic equities returned 2.0%, alternative strategies as a group returned 0.5%, and short-term securities/cash/other returned 0.2%.
The long-term trend of increasing allocations to alternative investment strategies was observed once again in FY2012; alternative strategies include private equity (LBOs, mezzanine, M&A funds and international private equity); marketable alternatives (hedge funds, absolute return, market neutral, long/short, 130/30, event-driven and derivatives); venture capital; private equity real estate (non-campus); energy and natural resources (oil, gas, timber, commodities and managed futures); and distressed debt.
This year’s data indicate that participating institutions’ allocation to alternatives grew by one percentage point to 54%. The alternatives allocation was correlated by endowment size, with institutions having endowment assets in excess of $1 billion reporting a 61% allocation to alternatives and those with assets less than $25 million reporting an average allocation of 11%. The three smaller size cohorts reported the largest allocations to domestic equities and fixed income.
Of the 831 study participants, 71% said they do not apply environmental, social and governance (ESG) criteria to portfolio holdings, the same as last year. Of the 149 institutions with some form of ESG policy, 60.1% of their portfolio reflects the use of negative screens. Forty-nine percent of these 149 institutions vote proxies consistent with their ESG criteria; 72% of these institutions report that ESG investing is a formal institutional policy.More about Commonfund is at www.commonfund.org.
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