Investment returns surge at education endowments

Investment returns on endowments at 461 U.S. colleges and universities averaged 11.7 percent, net of fees, in the fiscal year ended June 30, a sharp reversal from the previous year, when returns on average lost 0.3 percent, new data show.

Among 206 schools that completed a survey for the 2013 NACUBO-Commonfund Study of Endowments, returns averaged 10.4 percent over three years, 4.3 percent over five years, and 7.1 percent over 10 years.

The average allocation to alternative investments fell to 47 percent of participating endowments’ portfolios from 54 percent a year earlier, according to preliminary data, showing a “pause in the long trend of growth in schools’ allocation to alternative investment strategies,” Commonfund and NACUBO say.

Offsetting that decline was an increase in allocations to publicly traded equities, with participating institutions’ average allocation to domestic equities growing to 20 percent from 15 percent, and their allocation to international equities growing to 19 percent from 16 percent.

The allocation to fixed income investments was unchanged at 11 percent, while the allocation to short-term securities, cash and other investments fell to 3 percent from 4 percent.

Among 206 institutions included in the preliminary data, the effective spending rate, or the amount of spending specified by the board from the investable assets, usually expressed as an annual percentage of the beginning market value of the fund, averaged 4.2 percent, unchanged from the previous year.

Half of participating schools reported an increase in gifts, while 30 percent reported a decrease in gifts.

Endowments reported an average of the equivalent of 1.2 full-time employees devoted to investment management, down from the equivalent of 1.6 full-time employees the previous year.

Some of that “marked decline,” the study says, may be the result of an increase in outsourcing.

Forty-two percent of study respondents said they had substantially outsourced the investment management function, up from 38 percent the previous year.

And 45 percent of participating schools say they employ risk limits in their portfolios, while 33 percent say they do not.

Todd Cohen

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