Endowments Improving, Though not Fully Recovered

Higher education endowments earned returns averaging 19.8% in fiscal year 2011. 

The preliminary data gathered from 284 U.S. colleges and universities indicate these institutions’ endowments returned an average of 19.8% for the 2011 fiscal year.

The 2011 NACUBO-Commonfund Study of Endowments was sponsored by the Commonfund Institute and the National Association of College and University Business Officers (NACUBO). The study found the highest return earned for the FY2001 was 31.8% and the lowest was 3.7%.  

The FY2011 effective spending rate for the group averaged 4.3%, but for the two largest endowment cohorts with assets over $500 million the effective spending rates were 5.1% and 5%, respectively.  

“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 2008-09credit crisis,”  NACUBO President and Chief Executive Officer John D. Walda and Commonfund Institute Executive Director John S. Griswold said in a joint statement.  

In the past, larger endowments have tended to significantly outperform smaller ones. This year's sample, however, reveals a very tight spread, as institutions with assets over $1 billion returned 20.2% on average, while those with assets below $25 million reported an average return of 19.1%. Mid-range endowments-those with assets between $101 and $500 million-reported an average return of 19.9%. The lowest average return-18.9%-came from endowments with assets between $25 and $50 million. The highest average return—20.3%—was reported by endowments with assets between $51 and $100 million.

While average returns were quite similar across size groups, the way they were earned varied widely. For example, institutions with assets over $1 billion reported allocations to domestic equities that averaged just 12%. At the opposite end of the size spectrum, endowments with assets below $25 million reported a 41% allocation.

Similarly, the two largest size cohorts reported average fixed income allocations of 10% or less, while the three smaller size cohorts all had average fixed income allocations in excess of 20%. Major differences emerged once again in allocations to alternative strategies, as institutions with assets over $1 billion reported an average allocation of 58%, while institutions with assets under $25 million reported an average alternatives allocation of 9%. In general, allocations to international equities and short-term securities/cash/other were more consistent across the size cohorts.

The final results from this research will be released in January 2012.