Study Confirms Tough Year for Endowments

January 28, 2010 (PLANSPONSOR.com) – Final data from the 2009 NACUBO-Commonfund Study of Endowments (NCSE) shows an average return of -18.7% (net of fees) for the 2009 fiscal year ending June 30, 2009.

The average annual three-year return for institutions participating in the study was -2.5%, while the average annual return for the trailing five years was 2.7%, according to the study results. Over the past 10 years, participating institutions reported an average annual return of 4%.

Study results show that investment returns were negative for all asset classes but two – fixed income (3%) and short-term securities/cash (0.8%). International equities produced the weakest return (-27.6) and domestic equities were not far behind (-25.5%). Alternative strategies returned -17.8%, while short-term securities/cash/other returned -1.5%.

On June 30, 2009, NCSE survey data indicate that participating institutions’ dollar-weighted asset allocation was:

  • Domestic equities: 18%
  • Fixed income: 13%
  • International equities: 14%
  • Alternative strategies: 51%
  • Short-term securities/cash/other: 4%

Alternative strategies are categorized in the study as follows: Private equity (Leveraged buyouts (LBOs), mezzanine and M&A funds and international private equity); marketable alternative strategies (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.

Within alternative strategies, the asset mix was:

  • Private equity: 21%
  • Marketable alternative strategies: 43%
  • Venture capital: 7%
  • Private equity real estate: 12%
  • Energy and natural resources: 12%
  • Distressed debt: 5%

The average spending rate for educational endowments participating in this year’s study – calculated by dividing endowment dollars spent by the beginning endowment value – was 4.4%. Forty-three percent of study participants reported increasing their spending rate versus 25% that lowered it and 28% that reported no change.

The final data was little changed from preliminary results reported in December (see Endowments Suffer Average Net Loss of 19% in FY 2009).

Endowments' Fund Management and Social Investing

Institutions participating in the NACUBO-Commonfund Study of Endowments reported that the average number of investment managers they use, by asset class, is:

  • Domestic equities: 3.9
  • Fixed income: 2.2
  • International equities: 2.8
  • Alternative strategies (direct): 10.3
  • Alternative strategies (fund of funds): 2.5

On average, institutions employed 1.6 full-time equivalent employees (FTEs) to manage their endowments, but the median number of FTEs, 0.5, may be more indicative of true employment levels.

The institutions reported that it cost 63 basis points, on average, to manage their funds in FY2009. Measured on a median basis, the cost was 53 basis points.

Of the 842 study participants, 178 reported having some form of social investing policy. Of these 178 institutions, 55% screen all of their portfolios, while 34% screen part of the portfolio (11 percent offered no response or were uncertain). Participating institutions most frequently screen to eliminate investment strategies related to tobacco, geopolitical/location-specific concerns, alcohol, gambling, pornography, abortion, and armaments/weapons.

More information can be found at http://www.nacubo.org and http://www.commonfund.org.

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