College Endowments Drop an Average of 6%, but Donations Remain Steady, Study Finds

Colleges and their fund-raising foundations saw the value of their endowments fall for the second year in a row, according to preliminary results of a new study. The value of assets fell an average of 6 percent in fiscal 2002, compared with 3 percent in fiscal 2001.

The study was conducted by the Commonfund Group, an organization in Wilton, Conn., that manages investments for, and provides financial information to, nonprofit groups. More than three-quarters of the 637 institutions included in the study receive financial services from the Commonfund Group. The study asked institutions to assess their financial health in fiscal 2002, which ended in June for 80 percent of them.

While most institutions reported a decline in investment revenue, two-thirds said that the amount of money in gifts they received held steady or rose during the year. “I think that’s a sign that these institutions are taking full advantage of increasingly sophisticated fund-raising programs,” says John S. Griswold Jr., executive director of the Commonfund Group. “They’ve beefed up their development departments, which have gotten very good at cultivating donors.”

Despite the overall drop in endowment value, Mr. Griswold says that the losses could have been much worse, and that colleges and universities have benefited from a decade during which they diversified their portfolios.

“The good news is that the values of portfolios didn’t go down as much as most of the stock-exchange indices,” Mr. Griswold says. “Many schools have diversified their portfolios by putting money they once would have used for stocks into alternatives, such as private capital, hedge funds, and real estate. This has helped them survive the bear market.”

By making investments in vehicles other than stocks, institutions have largely avoided a worst-case scenario reminiscent of the economic downturn of 1973-4, “when colleges got hammered” as the stock market lost 50 percent of its value, says Mr. Griswold. More than 60 percent of the institutions covered by the study reported that they had changed the mix of investments in their endowment portfolios during fiscal 2002, up from 55 percent the previous year. Nearly 90 percent of those with endowments of $1-billion or more said they had rebalanced their portfolios.

A full report on the study is scheduled to be published in March. Copies of the study, which are free for nonprofit organizations, can be obtained by writing to jgriswol@cfund.org, or 15 Old Danbury Road, Wilton, Conn. 06897.