US-CANADA: Universities see endowments recover

A report on endowment fund returns shows a sharp increase in income for the 2010 fiscal year compared with 2009 and gives a positive signal that the recession might be easing for American and Canadian higher education institutions.

That said, the second annual NACUBO-Commonfund Study of Endowments (NCSE) has stressed that longer-term returns still remain low, because of the slump.

The report is drawn from the largest and most comprehensive study of higher education endowments for the 2010 fiscal year (30 June 2009 to 1 July 2010). It is the fruit of a research partnership between the US-based higher education organisation NACUBO and finance specialists Commonfund, both of which previously conducted separate studies of the investment performance of educational endowments.

In this year's study, 865 US and Canadian institutions were ranked by their endowment market value, with participating institutions representing more than US$46 billion in combined endowment assets.

Overall, longer-term returns remained depressed, reflecting the legacy of the recession. Indeed, the 2010 results showed that the average annual three-year return for all institutions was down 4.2%; the corresponding five-year return figure was 3.0%; while for 10 years the average annual return was 3.4%. However, the data showed an investment return average of 11.9% in the 2010 fiscal year; a huge increase over the average -18.7% return for 2009.

In another departure from last year's gloomier study results, returns were found to be positive for all major asset classes except real estate - only fixed income showed a positive return in 2009. Nevertheless, this year's study showed a negative return in the sub-asset class of private equity real estate (non-campus), which returned -15.8%.

"After a strong first half of FY2011, we are hopeful that good results in FY2010 can be repeated for the current fiscal year and thus return endowments to the solid footing needed to support the long-term missions of the institutions they support," said NACUBO president and chief executive officer John D Walda and Commonfund executive director John S Griswold in a joint statement.

They added a cautionary note, that the three-, five- and 10-year returns remained below the levels needed to fund long-term plans for standard spending, inflation and expenses. "We hope that the data contained in the annual NCSE will serve as a useful tool for trustees and staff as they make important decisions for their institutions," said the executives.

On average, 10.5% of study participants' 2010 operating budget was funded from endowment, a drop from last year's 13.4%, reflecting the fact that budgets for 2010 were prepared in the aftermath of 2009's -18.7% investment return and when university managers did not know that 2010 would be a year of positive returns.

Taking a look at specific institutions, Golden Gate University in San Francisco, California, showed the biggest jump in endowment market value from 2009 to 2010, with a 93.1% increase to $49.7 million for 2010, from $25.7 million for 2009. The institution with the greatest loss in endowment market value was Talladega College in Alabama, which had its endowments drop -31.8% from $3.6 million to $5.3 million in 2010.

The percentage change values for participating institutions reflect the net impact of withdrawals to fund institutional operations and capital expenses; the payment of endowment management and investment fees; additions from donor gifts and other contributions; and investment gains or losses.

The average percentage change overall was +8.4% for all 865 institutions. The top 10 universities for overall endowment funds (including Harvard, Yale and Princeton) showed an overall above average percentage change of 9.44%, however, the 10 universities with the least endowment funds in 2010 actually scored an even higher average percentage change of 14.4%.

Indeed, the year was generally positive for endowment funding, with only 15 institutions out of the 865 participating ones showing a negative percentage change for the year.