College Endowments Lost 13% in First-Quarter Pandemic Rout

(Bloomberg) -- College endowments lost 13.4% on average in the first quarter as the coronavirus pandemic slammed global markets.

U.S. schools with smaller endowments suffered deeper declines than those with larger funds, according to survey results released Friday by the National Association of College and University Business Officers and TIAA.

“Those smaller endowments had strong returns in a strong stock market but are at greater risk for investment losses when equity markets decline,” the researchers said. “The upside is that those institutions were, in all likelihood, less reliant on their endowments as a significant source of operating revenue.”

Colleges across the country are grappling with the economic impact of the virus, as they sent students home in March, forgoing room and board revenue. Schools are laying off and furloughing employees with finances uncertain and some students putting off enrollment. The health crisis sent the S&P 500 stock index plunging 20% last quarter, the biggest drop since 2008.

The average size endowment in the study was $547.4 million and the results are based on 333 colleges and affiliated foundations.

Depending on what happens with decreased enrollments for the 2020-2021 academic year, cash flow could become a greater concern.

Almost a quarter of private schools said they plan to borrow from their own endowments. One school told researchers it would only anticipate borrowing from its endowment if it can’t open residence halls or sees “a significant enrollment decline for fall.”

Schools have been tapping the bond markets, selling about $24 billion of debt since the beginning of the year, a sharp increase from the same period a year ago, according to data compiled by Bloomberg. Some of the richest colleges have taken advantage of low interest rates, including Harvard University, Yale University, Princeton University and the Massachusetts Institute of Technology.

Nacubo usually releases annual results. The trade group showed during the last recession that endowments’ investment returns fell nearly 23% on average from July through November 2008, the first five months of fiscal 2009.

©2020 Bloomberg L.P.