Higher-ed endowments earn 19.8 percent

Higher education endowments
Higher education endowments

Colleges and universities in the U.S. earned an average of 19.8 percent on their endowments in the fiscal year ended June 30, 2011, continuing a post-recession rebound that began in fiscal 2010, preliminary data from 284 schools show.

But that strong posting was not enough to push endowments to their pre-recession levels and barely lifted five- and 10-year average returns above the average effective spending rate of 4.3 percent, says the report from Communfund Institute and the National Association of College and University Business Officers, or NACUBO.

The spending rate for the largest endowments was higher, with endowments valued at $500 million to $1 billion spending 5.1 percent, and schools with endowments of more than $1 billion spending 5.0 percent.

The average endowment now stands at 86 percent of its value in 2007, and the average five-year return is 5.0 percent, while the 10-year return is 5.5 percent, the report says.

“What stands out in these preliminary figures is the fact that, despite the positive returns of this year and last, endowments still have not completely recovered from the damage inflicted by the market declines that accompanied the 2008-09 credit crisis,” John Walda, president and CEO of NACUBO, and John Griswold, executive director of Commonfund Institute, say in statement.

Among the universities surveyed, the highest return reported was 31.8 percent and the lowest was 3.7 percent.

While schools with larger endowments historically have outperformed smaller schools, returns for all sizes of endowments were within a narrow band of 18.9 percent to 20.3 percent, with the best performance posted by schools with endowments ranging from $51 million to $100 million.

Although small and large endowments posted similar average returns, their investment strategies were quite different.

The largest endowments, those with asset over $1 billion, on average invested 12 percent of their portfolios in domestic equities and 58 percent in alternative strategies.

On the other hand, the smallest endowments, those valued at $25 million and under, invested 41 percent of their assets in domestic equities and only 9 percent in alternative strategies.

The final report, which will include finalized data and more in-depth information, will be published in late January.

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