The return on investments for endowments at U.S. colleges and universities plunged in the fiscal year ended June 30 from the previous year and posted a loss, preliminary data show.
Endowments at 463 U.S. colleges and universities lost 0.3 percent on average, net of fees, in fiscal 2012, compared to an average return of 19.2 percent in fiscal 2011, according to preliminary data from the 2012 NACUBO-Commonfund Study of Endowments.
The largest and smallest endowments posted the best returns, while mid-range endowments reported losses.
Institutions with endowment assets over $1 billion reported the highest average returns of 1.2 percent, compared to 0.1 percent for those with assets from $501 million to $1 billion, and 0.2 percent for those with assets under $25 million.
Institutions with endowment assets from $51 million to $100 million lost 1 percent, compared to 0.8 percent for those with assets from $25 million to $50 million, and 0.5 percent for those with assets from $101 million to $500 million.
Returns for all institutions in the sample ranged from 15.8 percent to a loss of 9.5 percent.
Among a slightly smaller sample of 215 institutions, trailing three-year returns averaged 10.4 percent, trailing five-year returns averaged 1.5 percent, and trailing 10-year returns averaged 6.1 percent, all net of fees.
The data for fiscal 2012 and for the longer periods all “confirm the historic patterns of outperformance by larger institutions, chiefly those with assets in excess of $1 billion,” NACUBO and the Commonfund Institute say in a statement.
The pattern was interrupted in the financial crisis of 2007 to 2009, when smaller institutions tended to outperform as a result of their larger allocations to fixed income and shorter-term securities, they says.
Institutions with endowments of different sizes reported widely varying asset allocation, the data show.
Allocations to domestic equities average 10 percent for institutions with assets over $1 billion, for example, compared to 37 percent for those with assets below $25 million.
The most significant trend in asset allocation for higher education over the past 10 years, the data show, has been growth in allocations to alternative strategies, particularly among larger institutions.
The effective spending rate in fiscal 2012 for 215 institutions reporting that data averaged a total of $5.8 million, while the median total for gifts was $2 million.
Both average and median gifts were highest, by far, among institutions with assets over $1 billion, with gifts correlating with the size of institutions, shrinking with smaller institutions.
— Todd Cohen