Endowments average 11.7 percent return in FY2013 over FY2012

Lynn Russo Whylly's picture
Wednesday, January 29, 2014

NACUBO and Commonfund have released their annual study of endowments, and this year’s outlook is more positive than last year’s. Based on data collected from 835 U.S. colleges and universities for the fiscal year ending June 30, 2013, endowments for all participating higher ed institutions, which totaled $448.6 billion, averaged an 11.7 percent return, compared to a -0.3 percent return in the previous fiscal year.

While a considerable improvement over 2012, 2013’s return is not as strong as the returns seen in 2010 (19.2 percent) and 2011 (11.9 percent).

Study participants reported that their endowments are funding an average of 8.8 percent of their operating budgets. Institutions with assets over $1 billion were contributing significantly more, with a high of 16.2 percent, while smaller institutions with assets under $25 million were contributing significantly less, in the area of 2.5 percent.

“I think it’s important to point out that endowments are making a difference for their higher ed institutions,” Verne Sedlacek, president and CEO of Commonfund Institute, said at the Jan. 27 press conference announcing the results of the report. “They’re not not just sitting out there, they’re actually impacting the institution.”

Domestic equities generated the highest average return, at 20.6 percent, followed by international equities at 14.6 percent. Alternative strategies, which includes distressed debt, hedge funds and private equity, returned at 8.3 percent, while fixed income funds returned 1.7 percent and short-term securities/cash/other returned 1.2 percent.

Of all alternatives, distressed debt was the most profitable, with a 14.8 percent return, followed by marketable alternatives (hedge funds, absolute return, market neutral, long/short, 130/30, event-driven and derivatives) with 10.5 percent.

“The strong overall performance by endowments is encouraging at a time when the global economy continues its relatively slow recovery from the economic crisis of five years ago,” NACUBO President and CEO John D. Walda said in a public statement. He notes that higher ed institutions will use the additional funds to support student scholarships, financial aid, teaching, research, libraries and other vital programs.

Trailing three-year returns averaged 10.2 percent, with a 60-point spread from high to low (the same spread as last year), while trailing five-year returns averaged 4.0 percent with the spread widening to 110 points.

Overall, larger endowments have performed better over the longer-term, 10-year period, while smaller endowments with higher allocations to domestic equities performed better in the shorter term.