ADVERTISEMENT

U.S. College Endowments Gained 12.2% in Best Showing Since 2014

U.S. College Endowments Gained 12.2% in Best Showing Since 2014

(Bloomberg) -- U.S. college endowments gained 12.2 percent on average in fiscal 2017, the best performance in three years, according to an industry survey.

The performance for the year ended June 30 marks a turnaround from a year earlier, when the average endowment incurred a loss, according to the survey released Thursday by National Association of College and University Business Officers and money manager Commonfund. The S&P 500 Index returned 18 percent in fiscal 2017, outpacing the 1.6 percent gain for the Wilshire Bond Index.

Returns were the best since 2014, when endowments produced an average gain of 15.5 percent. Performance over a decade was uneven, averaging 4.6 percent annually and trailing a target of 7 percent many schools say they need to support their institutions.

U.S. College Endowments Gained 12.2% in Best Showing Since 2014

“A very strong fiscal 2017 has to be taken in context of a weaker decade,” Catherine Keating, president of Wilton, Connecticut-based Commonfund, said in a conference call before the results were released.

The 809 institutions surveyed had $566.8 billion of total assets at the end of the fiscal year and the average endowment size was $700.7 million.

All asset classes except commodities produced positive performance, according to the survey. The average gain from non-U.S. equities was 20.2 percent while U.S. equities were up 17.6 percent. Among alternative assets, private equity returned 11.7 percent, venture capital 8.4 percent and hedge funds 7.6 percent.

Commodities lost 2.5 percent for endowments while fixed income produced a gain of 2.4 percent.

U.S. College Endowments Gained 12.2% in Best Showing Since 2014

Bigger endowments saw slightly better returns at 12.9 percent because they invested less in fixed income, according to the report. Funds with more than $1 billion under management also allocated more capital to alternative investments -- 57 percent -- compared with 52 percent for endowments of all sizes.

Asset allocation remained stable in every category, from U.S. equities to alternatives strategies. There was no sign that endowments significantly cut exposure to hedge funds despite concerns about poor performance. Marketable alternative strategies, which include hedge funds, increased 1 percentage point to 40 percent.

The average college fund lost 1.9 percent in fiscal 2016 and saw endowment returns rise only 2.4 percent the year before that. The 10-year gain reflects double-digit losses from fiscal 2009.

The majority of colleges said they increased spending from endowments last year, according to the survey. The average spending rate was 4.4 percent, little changed from the year earlier.

Spending from endowments may be hurt by the U.S. tax overhaul that President Donald Trump signed, Nacubo and Commonfund officials said. The law increases the standard deduction, which might reduce incentives to make charitable donations, and applies a 1.4 percent tax on investment earnings at colleges with at least 500 students and more than $500,000 in endowment funds per student.

“It may become more difficult to increase spending,” John Walda, president of Washington-based Nacubo, which is based in Washington, said in the conference call. “It cuts directly into the amount of money they are able to allocate.”

--With assistance from Kate Smith

To contact the reporter on this story: Michael McDonald in Boston at mmcdonald10@bloomberg.net.

To contact the editors responsible for this story: Mary Romano at mromano6@bloomberg.net, Peter Eichenbaum

©2018 Bloomberg L.P.