U.S. College Endowments Surged In 2011

U.S. College Endowments Surged In 2011
  • Opening Intro -

    Fiscal year 2011 will go down as the year colleges and universities enjoyed the best returns on their endowments of this young century.

    Last year, the average college endowment increased by 19.2 percent, up from the 11.9 percent increase of 2010.

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Higher returns are needed to sustain overheads.

These increases followed on two very tough years as endowments fell by 3.0 and 18.7 percent in 2008 and 2009, respectively. Those drops have been largely attributed to the financial collapse that began in September 2008 and impacted all industries for much of the following year.

Endowment Importance

Endowments are important for all private colleges and universities as well as most state-supported institutions. These funds, largely brought in by donations and invested heavily, allow schools to attract and retain top faculty, to pay for programs, cover the upkeep and expansion of campus facilities, and help fund student education. Ivy League schools such as Harvard University are usually the best-funded institutions, with the Massachusetts school claiming a $32 billion endowment at the end of its last fiscal year.

An annual survey of endowment returns by the National Association of College and University Business Officers and the Commonfund Institute shows that endowments have risen, although many schools report that overall funding remains below pre-recession highs. According to the survey, The average annual 3-year return for participating institutions was 3.1 percent, reflecting an increase from the FY2010 three-year return of -4.2 percent. The corresponding 5-year return figure was 4.7 percent, up from 3.0 percent in FY2010, while the average annual return over 10 years rose to 5.6 percent from 3.4 percent a year ago.

Positive Returns

Survey respondents reported positive returns across all asset categories including private equity real estate representing non-campus properties. That category was the only one to register a decline in 2010.

Leading the way in 2010 and again in 2011 was domestic equities which saw an increase of 30.1 percent compared with 15.6 percent in 2010. International equities yielded a gain of 27.2 percent; alternative strategies came in at 14.1 percent and fixed in comes at 6.5 percent. Not surprisingly, short-term securities and cash yielded a gain of just 0.5 percent, reflecting the historically low yields paid on these investments.

“Fiscal 2011 was marked by favorable financial markets that benefited higher education endowments. With average returns close to 20 percent and all six size cohorts reporting strong returns, the fiscal year was highly positive for educational endowments participating in the Study,” NACUBO President and Chief Executive Officer John D. Walda and Commonfund Institute Executive Director John S. Griswold said in a joint statement. They added, “However, we should note that fiscal 2011 closed before equity markets encountered headwinds and high volatility beginning in July 2011 caused by concerns about the debt crisis in Europe, the stubbornly high U.S. unemployment rate, and much slower growth in the U.S. economy. Endowments very certainly were stressed by these factors during the latter part of calendar year 2011.”

Looking Ahead

As positive as the news is for 2011, there are some problems on the horizon. Specifically, Walda and Griswold noted that the longer-term gains still fall short of what schools need to pay for annual spending, inflation and investment managing. Reporting schools spent an average of 4.6 percent per year last year and with inflation running at approximately 3 to 4 percent, annual gains of 8 to 9 percent are needed to stay even. Thus the 10-year average gains of 5.6 percent are not keeping pace with what schools will need going forward.

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