By Ret Boney
Investment returns on higher education endowments averaged more than 9 percent in 2005, with many of the largest schools seeing double-digit growth, two studies say.
The Commonfund Benchmarks Study, conducted by the Commonfund Institute in Wilton Connecticut, placed the average 2005 return at 9.7 percent, down from 14.7 percent in 2004, but still strong.
And a survey by the National Association of College and University Business Officers and TIAA-CREF shows an average return of 9.3 percent last year.
The average 2005 return was well above the amount needed to cover spending in endowments says John Griswold, executive director of the Commonfund Institute, noting returns should cover spending costs of 5 percent plus inflation and some costs.
“The distinguishing feature was the range of returns,” he says. “The marquee universities did extremely well in many cases and we’re looking under the covers to see why they did so much better than average.”
That stronger-than-average performance may be due in part to alternative investment strategies, Griswold says.
The largest 10 percent of institutions increased their holdings in alternative strategies, which include real estate and venture capital, commodities and natural resources, while reducing reliance on domestic equity.
“They were in early so they got the best seats and those seats aren’t available anymore,” he says of the large, established institutions.
Across all respondents, asset allocation was fairly stable, with 28 percent of endowment dollars in fixed equity, 16 percent in fixed income, 18 percent in international equity, 35 percent in alternative strategies and 3 percent in cash.
Overall, almost three in four Commonfund respondents rebalanced their portfolios last year, and one in three expect to increase investment in alternative strategies in 2006 and one in four plan to reduce allocations to domestic equity.
The average spending rate, the portion of an endowment given to an institution’s operating budget, decreased slightly last year to 4.6 percent, the study says.
Almost half the respondents reported an increase in gifts to endowments, while one in four saw a decrease.
The NACUBO study places Harvard at the head of the pack with an endowment of $25.5 billion, up 15 percent in market value since 2004.
Yale came in second at $15.2 billion, up 19.4 percent, and Stanford took third place with $12.2 billion, up 23 percent during the year.
Emory University’s was the only top-100 endowment to lose market value, down 3.5 percent to $4.4 billion, the study says.