February 3, 2005 | Read Time: 3 minutes
Endowments at American colleges and universities earned substantially more last year than they did in the previous few years, according to two new reports.
Endowments reported average returns of 14.7 percent in 2004, according to the annual Commonfund Benchmarks Study, released by the Commonfund Institute, in Windsor, Conn. That is the best performance recorded in the five years that the institute has been conducting its study. In 2003, the average endowment return on earnings was 3.1 percent.
The finding is similar to that of the second report, issued by the National Association of College and University Business Officers. It found endowments returned an average of 15.1 percent in earnings last year. The Nacubo report described that rate of return as “unusually high,” but added that it was not enough to erase the losses endowments have suffered since 2000.
John S. Griswold, executive director of the Commonfund Institute, said he agreed. “When you look at the three- and five-year returns, some of those endowments lost 15 to 20 percent of their value when you count all those years of negative returns,” he said.
The two reports study slightly different groups of organizations: The Commonfund Institute’s study included 707 private and public institutions, while the association looked at the 747 colleges and universities that responded to its survey. About 80 percent of those in the Commonfund study use a July 1 to June 30 fiscal year; in the business-officer association’s report, all data are based on that time period.
As in most years, the performance of the endowments nearly mirrored the change in the financial markets. From July 1, 2003, through June 30, 2004, the Dow Jones industrial average rose by 16.1 percent.
The Commonfund Institute is the research arm of Commonfund, a company in Wilton, Conn., that manages approximately $29-billion in assets for more than 1,600 nonprofit organizations.
Though Mr. Griswold attributed at least part of the improved performance of the endowments to improvements in financial-management strategies, the institute found little change from the previous year in the way the educational institutions’ funds were invested.
Slightly less than half of the assets were invested in American and international stocks, about one-third in alternative holdings (such as venture capital and real estate), and 15 percent in fixed income (such as government and corporate bonds).
The institutions in the Nacubo study reported slightly different asset allocations, with 60 percent in American and international stocks and 22 percent in fixed income.
The Commonfund study found that as returns on endowment investments have improved over the past three years, the percentage of their endowments that educational institutions spend on their operations has declined. In 2002, when colleges on average lost money on their investments, they spent 5.1 percent of their endowments. Last year, that fell to 4.8 percent.
More institutions reported increases in gifts in 2004 than the prior year, Commonfund said. Last year, 42 percent of all colleges and universities saw their donations increase, compared with 34 percent in 2003.
Another new study, by the financial services firm Goldman Sachs, found that donors believe higher-education institutions do a good job of managing their endowments. About two-thirds of those polled said colleges and universities manage their endowments well.
Nonprofit organizations can obtain copies of the Commonfund Benchmarks Study free by contacting Mr. Griswold at (203) 563-5000, or by e-mail at jgriswol@cfund.org.
The National Association of College and University Business Officers Endowment Study will be available on CD-ROM in mid-February, at a cost of $69.95 for association members and $199.95 for nonmembers. To place an order, call the association at (866) 348-6300.
The Goldman Sachs survey results are scheduled to be posted on the Global Markets Institute’s Web site, http://www.gs.com/gmi.
