Study: College endowments hit hard by markets

On average, college and university endowments’ investments lost 0.3 percent in the last fiscal year, a sharp drop from the average return of 19.2 percent in fiscal 2011, according to a study by the Commonfund Institute and the National Association of College and University Business Officers, known as Nacubo.

The returns were dragged down mostly by the dismal performance of international equities, whose returns declined by 11.9 percent, attributable in good part to the economic turmoil in Europe and the slowdown in China. Domestic stocks had an average return of 2 percent, and fixed-income assets 6.8 percent.

The University of California endowment’s investments lost 0.7 percent and UC Davis Foundation endowment’s 0.4 percent — compared to gains of 20.2 percent and 18.7 percent, respectively, in 2011.

The Nacubo study, based on data from 831 American colleges and universities with a total of more than $400 billion in endowment assets, showed more positive long-term results.

“Over the last 10 years, the average rate of return was 6.2 percent,” said John Walda, the president of Nacubo. “That’s a good number when you compare it with various indices.”

In the fiscal year that ended in June 2011, the average 10-year return was 5.6 percent.

The study, which includes large and small institutions, public and private, found that those with the largest endowments had the greatest returns last year. Among universities with endowments greater than $1 billion, the average return was 0.8 percent. Those with endowments of $25 million to $500 million had negative returns, and those with endowments under $25 million had a return of 0.3 percent.

Altogether, 71 institutions have endowments greater than $1 billion, and 145 have more than $500 million.

The value of the UCD Foundation’s endowment stood at $204 million at the end of the fiscal year, up 1.5 percent.

UCD raised a total of $132 million — its second best fundraising year ever. Of that, $24 million was pledged to various endowments, including the UCD Foundation, according to Shaun Keister, vice chancellor for development and alumni relations.

The foundation’s endowment has benefited from the Campaign for UC Davis, which seeks to raise $1 billion by 2014. The campus’ first comprehensive fundraising effort has tallied $915 million since July 2006. UCD launched the campaign’s public phase in the fall of 2010.

The colleges and universities in the Nacubo study spent an average of 4.2 percent of their assets last year to support their operations, down from 4.6 percent the previous year. But while the spending rate had declined somewhat, the average dollars spent per institution grew by about 7 percent.

Most colleges and universities have a policy of spending 4 percent to 5 percent of their average endowment value over the previous three years, so the sharp rises in endowment values in 2010 and 2011 increased the amount paid out last year. The UCD Foundation’s spending rate is 4.25 percent.

The institutions with the largest endowments, which get a significant portion of their operating budgets from endowment spending, spent an average of 4.7 percent last year. The institutions with the smallest endowments spent slightly under 4 percent.

“The long-term goal of most endowments is to exist in perpetuity and grow with the rate of inflation,” said Verne Sedlacek, president of Commonfund.

To do that while paying out 4 percent to 5 percent a year, he said, would require annual returns of at least 8 percent, given that the higher education price index has been rising about 3.8 percent a year over the last decade. “Universities are still not back to where they need to be,” Sedlacek said.

Online: http://giving.ucdavis.edu

— Tamar Lewin of the New York Times and Enterprise staff writer Cory Golden contributed to this report.