U.S. endowments and foundations have experienced strong asset growth in recent years, with the endowments posting what may be the highest rate of return in a decade.
Endowments had an average investment return of 20.5% in the 1997 fiscal year ended June 30, according to preliminary results from the National Association of College and University Business Offices, Washington. NACUBO tracks endowments of U.S. colleges and universities, of which there are approximately 3,600 in the United States.
Returns for specific endowments during the fiscal year ranged from a high of 46.9% to a low of 6.8%, according to the NACUBO report.
The nation's third largest endowment, Harvard University of Boston, reported total investment return of 25.8% for the year ended June 30. Harvard's endowment assets have a market value of about $11 billion.
However, Jack R. Meyer, president and chief executive of the Harvard Management Co. Inc., which manages the endowment warned in a letter to friends of the endowment that the fund's double-digit returns will not continue indefinitely.
"We are fortunate that the strong results of recent years have provided a cushion against the inevitable rainy days, weeks, years that may lie ahead," the letter said.
The NACUBO study involved 375 institutional investment pools; data were compiled by Cambridge Associates Inc., Boston, for NACUBO. Because all endowments have not yet contributed information, the preliminary results do not represent an endowment universe, according to NACUBO.
On average, the asset allocation breakdown for U.S. endowments was 52% domestic common stock, 23.1% domestic fixed income, 11.6% international common stock, 4.9% domestic cash and cash equivalents, 1.8% international fixed income, 1.7% equity real estate, 1.5% in hedge funds and 3.4% in other holdings such as mortgage real estate and faculty mortgages, according to NACUBO's preliminary information.
The current trend in endowment asset management is to internationalize their portfolio to take advantage of global opportunities, said Larry Goldstein, senior vice president of NACUBO. Endowments continue to move more broadly into equities and away from fixed income, in which they were disproportionately weighted years ago, Mr. Goldstein said.
Preliminary findings indicate that the equal-weighted mean return for endowments was 20.5% for the fiscal year ended June 30, vs. the 20.3% return for all master trusts with assets greater than $1 billion for year end June 30 as measured by the Trust Universe Comparison Service. Comparison of endowments and institutional asset pools must consider the distinct way that endowments must account for principal and income, Mr. Goldstein said.
According to a 1995 survey by the Council on Foundations, about half of the average foundation portfolio is invested in stocks, nearly a third is made up of fixed income assets. For the largest independent foundations, the ratio is two-thirds stocks and one-fourth fixed income.
Foundations have been moving the remainder of the portfolio assets into alternative investments in recent years, studies indicate.
The nation's largest foundation, the $9.4 billion Ford Foundation, New York, posted total returns of 24.3% for fiscal year ending Sept. 30. The foundation invests 49.7% of the fund in U.S. equities, 17.5% in international equities, 25.6% in fixed income, which includes U.S. and international bonds and cash, and the rest in alternative investments, such as venture capital and real estate.
Many foundations hold stock in their own corporation. The assets of the nation's third largest foundation, Lilly Endowment Inc. of Indianapolis, are 98% invested in Eli Lilly and Co. common stock. Short-term investments required to meet cash flows are managed internally, according to David Biber, the endowment's treasurer and secretary. The Lilly family donated the stock to the endowment in 1937.
The unprecedented level of new gifts to U.S. foundations in recent years has led to a rise in asset pools, according to The Foundation Center, a New York-based foundation tracking organization.
And, exceptional gains in the U.S. stock market were enjoyed by some of the larger foundations.
There are 40,000 foundations in the country now, twice the number that existed in 1980. The nation's foundations have more than $227 billion in assets, up from $31 billion in 1980, according to the center. Registered foundations are required to give away 5% of assets each year.
As a way to measure overall growth of foundations, the center looks at the increase in grant money dispersed by the foundations. In 1995, the foundations gave out $12.3 billion, up 8.6 percent since 1994. New gifts to the foundations soared in 1995, beyond $10 billion, setting a record.