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Higher education endowments earned investment returns averaging 19.8% in 2011

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Preliminary data gathered from 284 US colleges and universities indicate that these institutions’ endowments returned an average of 19.8 per cent (net of fees) for the 2011 fiscal year (1 July, 2010 – 20 June, 2011), according to Commonfund Institute and the National Association of College and University Business Officers (NACUBO), joint sponsors of the 2011 NACUBO-Commonfund Study of Endowments (NCSE).

The highest return earned for FY2011 was 31.8 per cent and the lowest was 3.7 per cent. Institutions in the study range from those with endowment assets under USD25 million to those with assets in excess of USD1 billion.

The FY2011 effective spending rate for the group averaged 4.3 per cent, but for the two largest endowment cohorts with assets over USD500 million the effective spending rates were 5.1 per cent and 5.0 per cent, 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 2008-09 credit crisis," NACUBO President and Chief Executive Officer John D Walda and Commonfund Institute Executive Director John S Griswold said in a joint statement. “The average endowment is still at only 86 per cent of its value in FY2007, using return data from past NCSE reports and a 5 per cent spending rate,” they noted, “and longer-term returns for five- and ten-year periods are only 5.0 per cent and 5.5 per cent, respectively – not significantly higher than the spending rate for many institutions. It will take several more years of positive returns for endowments to recover fully from the crisis.”

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 USD1 billion returned 20.2 per cent on average, while those with assets below USD25 million reported an average return of 19.1 per cent. Mid-range endowments—those with assets between USD101 and USD500 million—reported an average return of 19.9 per cent. The lowest average return—18.9 per cent—came from endowments with assets between USD25 and USD50 million. The highest average return—20.3 per cent—was reported by endowments with assets between USD51 and USD100 million.

While average returns were quite similar across size groups, the way they were earned varied widely. For example, institutions with assets over USD1 billion reported allocations to domestic equities that averaged just 12 per cent. At the opposite end of the size spectrum, endowments with assets below USD25 million reported a 41 per cent allocation. Similarly, the two largest size cohorts reported average fixed income allocations of 10 per cent or less, while the three smaller size cohorts all had average fixed income allocations in excess of 20 per cent. Major differences emerged once again in allocations to alternative strategies, as institutions with assets over USD1 billion reported an average allocation of 58 per cent, while institutions with assets under USD25 million reported an average alternatives allocation of 9 per cent. In general, allocations to international equities and short-term securities/cash/other were more consistent across the size cohorts. (All allocations are reported on a dollar-weighted basis.)

Researchers are still gathering and tabulating data for the full NCSE; final results will be released in late January. Last year’s NCSE reported and analysed return data and a broad range of related information reported by 850 U.S. colleges and universities, both public and private, as well as their supporting foundations. The size and scope of the Study make it the most comprehensive annual report on the investment management and governance practices and policies of institutions of higher education across the U.S.

Final Study results and analysis will go into much greater depth—including data on governance policies and practices— and will break out data not only by size of endowment but also by type of institution (public, private and foundations).

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