Returns on Educational Endowments Improved in FY17, Study Finds

The endowments of U.S. colleges and universities returned an average of 12.2 percent, net of fees, in the fiscal year that ended June 30, 2017, a report from the Commonfund Institute and the National Association of College and University Business Officers finds.

Based on survey responses from 809 colleges and universities representing $566.8 billion in endowment assets, the 2017 NACUBO-Commonfund Study of Endowments found that the average return in FY2017 was up sharply compared to the -1.9 percent average return in FY2016 and the 2.4 percent average return in FY2015. However, with FY2007's 17.2 percent return dropping out of the ten-year calculation, the trailing ten-year average return fell again, from 5 percent in FY16 to 4.6 percent in FY17. The survey also found that average returns for FY17 ranged from 11.6 percent for the smallest endowments (less than $25 million) to 12.9 percent for the biggest (more than $1 billion).

With FY17 included in the calculation, the highest average returns over ten years, 5 percent, were registered by both the largest endowments (down from 5.7 percent in FY16) and the smallest (unchanged from last year). At the same time, the effective spending rate of the surveyed institutions averaged 4.4 percent, up from 4.3 percent in FY16, while 65 percent of institutions reported an increase in their endowment spending, with a median of 6.5 percent.

The survey also found that among asset classes, only fixed income produced a return that was lower in FY17 (2.4 percent) compared with FY16 (3.6 percent). The average return for non-U.S. equities, which at -7.8 percent in FY16 was the lowest for any asset class, rebounded smartly to 20.2 percent in FY17, the highest for any asset class, followed by U.S. equities (17.6 percent), alternative strategies (7.8 percent), and short-term securities/cash/other (1.4 percent).

"Continued substantial increases in endowment spending dollars, despite lower long-term investment returns, demonstrate the deep commitment colleges and universities have to student access and success," said NACUBO president and CEO John D. Walda. "However, continued long-term growth of 5 percent or less, along with the coming changes to tax and charitable giving laws under the recently passed Tax Cuts and Jobs Act, will make it much more difficult for colleges and universities to increase endowment dollars to support their missions. Despite this year's higher returns, we remain concerned about the continued long-term results for most endowments."