Endowment funds at U.S. colleges and universities reported an average rate of return of 2.4 percent—the lowest growth in three years.
The numbers, contained in the 2015 NACUBO-Commonfund Study of Endowments, mark a significant decline compared with the 15.5 percent rate of return reported in fiscal 2014. The study also found that the long-term, 10-year average return for endowments was 6.3 percent, a drop from 7.1 percent in 2014.
"This year's long-term return figure is well below the median 7.5 percent that most endowments report they need to earn in order to maintain their purchasing power after spending, inflation and investment management costs," a news release from NACUBO (National Association of College and University Business Officers) states.
The 812 institutions in the 2015 study account for $529 billion in endowment assets. (Here's a list of 10 largest endowments in 2015)
“FY2015’s lower average 10-year return is a great concern,” NACUBO President and Chief Executive Officer John D. Walda says. “On average, institutions derive nearly 10 percent of their operating funds from their endowments. Lower returns may make it even tougher for colleges and universities to adequately fund financial aid, research, and other programs that are very reliant on endowment earnings and are vital to institutions’ missions."
Larger endowments performed better—the 94 with values greater than $1 billion had an average one-year return of 4.3 percent; the 117 colleges and universities with endowments between $25 million and $50 million had an average one-year return of 1.9 percent.
The list of endowments is led by Harvard University, which had $36.4 billion in its fund, a 1.6 percent increase from the $35.9 billion reported in 2014.
The study found that 78 percent of higher-education institutions increased the amount they spent in 2015 from their endowments. The colleges and universities spent an average of 4.2 percent of their endowments in 2015, compared with 4.4 percent the year before.
Higher-education institutions have been working in the last several years to get their endowments back on track In the aftermath of the 2008 recession. Following the market crash that year, colleges and universities saw the value of their endowment funds plummet as benefactors curtailed their donations to institutions.
