University Endowments Gain 5.3% in 2019 | Chief Investment Officer

Colleges and university endowments in the US generated a lackluster 5.3% average return net of fees in fiscal year 2019 — a drop from 8.2% the year prior — based on recession fears that pummeled market returns, report says.

Diminished performance in both US and non-US equities during the one-year period from July 2018 to June 2019 contributed to muted endowment gains, according to a joint study released Thursday from NACUBO-TIAA, an industry group and insurance company. The report reviewed 774 institutions holding roughly $630 billion in assets.

In public equities, global equity markets gained just 5.7% in fiscal year 2019, down from 10.7% the prior year. In the US, the S&P 500 posted returns of 10.4%, down from 14.4%.

However, the average 10-year return at all institutions, at 8.4%, beat long-term objectives for the first time in a decade, thanks to the long recovery of the market following the 2008 financial crisis. The strong returns have helped universities increase their withdrawal spending by more than $2 million, including allotting nearly half their spending to student financial aid.

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But researchers advised endowment managers against relying on the number as a reference for future planning and spending, as it is indicative of just one segment of the market cycle. In fact, long-term endowment return objectives are trending downwards at investment oversight committees, the report said.

The 10-year return “is reflective of the incredible bull market that we’ve had coming out of the great financial recession,” Dimitri Stathopoulos, head of US Institutional at Nuveen, a TIAA company, said during a conference call with reporters.

“As we move forward, especially in looking at where the industry’s expectations are for capital market returns, it’s going to be harder and harder to continue to get those types of returns,” he added.

Institutions with endowments larger than $1 billion reaped the greatest annual rewards, posting an average gain of 5.9% for fiscal year 2019 and beating the average total institution return of 5.3%. Greater exposure to private equity and venture capital investments helped them outperform all other asset cohorts.

Only the smallest asset classes under $50 million also beat the annual total institution return, punching above their weight thanks to better exposure to US public equity. Endowments with $25 million to $50 million in assets posted a 5.5% gain, while the ones under $25 million generated a 5.8% return.