The endowment funds of 842 U.S. universities declined sharply in fiscal year 2009. The National Association of College and University Business Officers (NACUBO) and Commonfund found average drops of 18.7 percent in endowments, according to a study they released this week.
The study surveyed “public and private colleges and universities, their supporting foundations, and community colleges.”
The endowment drop is an anomaly, according to executive director of the Commonfund Institute (CI) John S. Griswold. He said multiple factors caused the drop. The primary cause was last year’s market collapse, “the worst decline since the great depression,” which hit stock markets, real estate, and commodities markets. “Everything except treasuries went down last year,” Griswold said.
Risky investments were not the main cause of the decline, according to Griswold. He said “so-called risky investments” actually performed better in the past year than domestic and international stock markets.
The report said endowment return has seen a downward trend for the past decade. The institutions reported an average annual return of 4 percent on endowments over the past ten years. The average return was -2.7 percent over the past five years. It was -2.5 percent during the past three years.
Griswold said he is “cautiously optimistic” about the future fiscal health of endowments. “Barring another downturn we seem to be back on a growth pattern, on the road to recovery, but obviously no guarantees.” He added that he believes that the endowment model of educational funding will continue into the foreseeable future.
The report found that two asset classes gained in 2009. Fixed income gained by 3.0 percent and short-term securities and cash gained by 0.8 percent, which is very unusual, Griswold said, and occurred “because people sought protection from stock markets or other markets.” He said fixed-income investments are not sustainable for long-term income.
The study surveyed “public and private colleges and universities, their supporting foundations, and community colleges.”
The endowment drop is an anomaly, according to executive director of the Commonfund Institute (CI) John S. Griswold. He said multiple factors caused the drop. The primary cause was last year’s market collapse, “the worst decline since the great depression,” which hit stock markets, real estate, and commodities markets. “Everything except treasuries went down last year,” Griswold said.
Risky investments were not the main cause of the decline, according to Griswold. He said “so-called risky investments” actually performed better in the past year than domestic and international stock markets.
Ups and Downs
The report said endowment return has seen a downward trend for the past decade. The institutions reported an average annual return of 4 percent on endowments over the past ten years. The average return was -2.7 percent over the past five years. It was -2.5 percent during the past three years.
Griswold said he is “cautiously optimistic” about the future fiscal health of endowments. “Barring another downturn we seem to be back on a growth pattern, on the road to recovery, but obviously no guarantees.” He added that he believes that the endowment model of educational funding will continue into the foreseeable future.
The report found that two asset classes gained in 2009. Fixed income gained by 3.0 percent and short-term securities and cash gained by 0.8 percent, which is very unusual, Griswold said, and occurred “because people sought protection from stock markets or other markets.” He said fixed-income investments are not sustainable for long-term income.
International equities lost the most with an average return of -27.6 percent, according to the report, but have come “roaring back” since a low point in February 2009, according to Griswold. Domestic equities were likewise weak in 2009, averaging a -25.5 percent return. Alternative strategies returned -17.8 percent, while short-term securities, cash, and other returned -1.5 percent.
More than half of institutions surveyed reported that gifts had declined, while 26 percent reported an increase in donations.
Belt Tightening
Stanford University reported a 25.9 percent loss in investments in 2009. According to the university Web site, the school has reduced payout from endowment funds by 10 percent in 2010 and plans a 15 percent reduction in fiscal year 2011.
Stanford has made budget cuts by starting a salary freeze, laying off 400 people, eliminating vacant positions, postponing $1.1 billion in capital projects, and other reductions, but says it has not yet had to cut student financial aid.
NACUBO is “a membership organization representing more than 2,500 colleges, universities, and higher education service providers internationally and in the United States.
The Commonfund Institute is a nonprofit corporation that manages funds for nonprofit educational institutions, as well as foundations, health care, and other nonprofits. Endowments are financial assets donated to educational institutions. They are usually invested, and the generated interest is used by the school.
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