US college and university endowments returned an average of 8.2% net of fees for the fiscal year ending June 30, 2018, down from 12.2% the previous year, according to the 2018 NACUBO-TIAA Study of Endowments.
The decline in performance from 2017 was mainly attributed to a drop in the international and US equity markets. Non-US equities, which returned 20.2% last year, fell to 6.8% in fiscal year 2018, while US equities returned 13.6%, down from 17.6% the previous year.
Although the data, which was collected from 802 US colleges and universities, shows
relatively strong returns over the past two years, the long-term returns have fallen well below their target. The endowments’ average three-, five, and 10-year annualized returns are 6.2%, 7.3%, and 5.8%, respectively. The 10-year returns are nearly a percentage and a half off the 7.2% return the institutions reported as their average long-term return objective.
Many endowment managers use 10-year average annual returns as a target for long-range planning purposes.
NACUBO President and CEO Susan Whealler Johnston said she was concerned “about the below-target long-term rates of return, which have made it much more difficult for colleges and universities to increase endowment spending to support their missions.”
The annual study analyzes return data and a broad range of related information gathered from public and private US colleges and universities, as well as their supporting foundations. The institutions in the 2018 study represented $616.5 billion in endowment assets. The median endowment size was approximately $140.2 million, and 41% of the participants had endowments that were $101 million or less.
According to the data, the larger an endowment is, the better returns it produces – at least over the short and medium term. However, over the long term, the gap in returns between the larger and smaller endowments was less significant.
Endowments larger than $1 billion had an average one-year return of 9.7%, compared to overall average return of 8.2%. Endowments that are between $500 million and $1 billion in size returned 8.7% in 2018, while the smallest group, which consists of endowments of less than $25 million returned 7.6% last year, more than 2% below the returns of the largest endowments.
But over the past 10 years, endowments over $1 billion in size had annualized returns of 6%, while endowments between $500 million and $1 billion in size returned 5.6%, and the smallest group returned 5.8%. Endowments of between $25 million and $50 million, which is the second-smallest group in the report, had the highest 10-year returns at 6.1%.