WASHINGTON - Higher education endowments and foundations with $1 billion or more in assets averaged a 29.2% rate of return in the year ended June 30, up from 12.3% the year before, according to the National Association of College and University Business Officers.
The 569 funds of all sizes included in the study had a mean return of 13% in the year ended June 30, up from 11% the previous year.
The findings are part of Washington-based NACUBO's 31st annual study of higher education endowments and foundations. The study data, due out in mid-May, were gathered and compiled by TIAA-CREF.
The study covers funds in the United States and Canada that collectively hold $241 billion in assets. Forty-one of the institutions had $1 billion or more in assets under management.
The high average return was due in no small part to the funds' exposure to alternative investments such as venture capital, hedge funds and private equity, said Larry Goldstein, NACUBO senior vice president.
The 45 endowments with assets between $500 million and $1 billion scored an 18.8% average rate of return; those with asset between $100 million and $500 million, 12%; and those with less than $100 million, 9.7%, barely beating the Russell 3000 index's 9.6% return for the year ended June 30. All figures are equal-weighted returns.
"What you can do with $1 billion is more than you can do with $200 million," Mr. Goldstein said, commenting on the lower rates of return for smaller funds.
Much venture capital
According to the NACUBO data, endowments with $1 billion or more in assets invest 12.6% of total assets in venture capital, 6% in private equity and 5.6% in hedge funds, on average. Smaller endowments put much less into alternatives. On average, endowments with assets between $500 million and $1 billion placed 5.7% of total assets in venture capital, 2.4% in private equity and 5% in hedge funds. Endowments with $100 million or less place 0.8% in venture capital, 0.7% in private equity and 1.4% in hedge funds.
The smaller endowments were more attracted to the traditional asset classes. On average, those with less than $500 million had higher allocations to domestic equities and fixed income. Endowments with $100 million or less averaged 53.3% of total assets in U.S. equities, 23 percentage points higher than the average allocation of their peers with $1 billion or more.
The $1 billion-plus club placed 13.4% of total assets in domestic bonds on average, up 0.7 percentage points from 1999. Those with assets of $100 million to $500 million placed an average of 20.4% in domestic bonds, only 3.2 percentage points less than the average allocation of their peers with less than $100 million in assets.
The large funds outdid their peers longer-term as well. For the 10-year period ended June 30, funds with $1 billion or more had an average 15.6% return, those with $500 million to $1 billion averaged 14%; $100 million to $500 million, 13.3%; and less than $100 million, 12.2%.
Private endowments scored an average rate of return of 14.3%. Public endowments pulled in a 10.6% average.
Yale grows 40%
Yale University, New Haven, Conn., grew 40.3%, pushing the endowment's assets to $10.1 billion in 2000 from $7.2 billion the year before.
Yale targets a mere 15% of total assets to domestic equities, 10 percentage points lower than its private equity target. In addition, as of June 30, the endowment had 22.5% of total assets targeted to absolute-return strategies and 17.5% to real estate, oil and gas and timberland, according to the study.
Yale's growth made it the second-largest endowment on the list, surpassing the University of Texas System, Austin, which trails by only $70 million.
Harvard University, Boston, continued its reign as the largest endowment, with $18.8 billion in total assets, a growth rate of 32.2%.