WASHINGTON - Colleges and university endowments lost 3.6% in the year ended June 30, according to a study by the National Association of College and University Business Officers, Washington.
Symbolizing the lackluster year for endowments was the Stanford University endowment, where the return fell 41.5 percentage points from the previous year, to -2% from 39.5%.
Overall, the equal-weighted mean return of -3.6% represents a 16.6 percentage point drop from the one-year period ended June 30, 2000, reflecting a downward turn in the equities markets. On a dollar-weighted basis, the mean return was -2.7% for the 610 responding U.S. and Canadian institutions.
The findings are part of NACUBO's 32nd annual study of higher education endowments and foundations. The study covers funds that collectively hold $147 billion in assets. The study data were gathered and compiled by TIAA-CREF, New York. Preliminary results are available on NACUBO's website (www.nacubo.org). The full study was expected to be released late last month.
The study splits endowments into four groups determined by assets. The two largest groups had the best and worst returns. Of the responding endowments, the 41 with more than $1 billion in assets had a mean -1.6% return for the year. The worst mean return, -5.2%, belonged to the 47 responding endowments with assets between $500 million and $1 billion.
"It was a bad year on the whole because endowments were unable to achieve their investment goals," said Larry Goldstein, senior fellow of NACUBO, in an e-mail interview. Despite the failure to reach goals, the funds were well managed as evidenced by their ability to beat broader equity market indexes, he added.
For the one-year period, the Russell 3000 and Standard & Poor's 500 indexes returned -13.9% and -14.8%, respectively, according to Pensions & Investments' Performance Evaluation Report. The Lehman Brothers Aggregate Bond Index and Salomon Broad Bond Index returned 11.2% and 11.3% respectively, according to PIPER. However, their influence over returns was limited because of the small fixed-income allocations from endowments. According to the NACUBO study, bonds of all varieties comprise only 25% of the average asset mix.
Allocations to domestic equities dropped during the 12 months, according to NACUBO. As of June 30, 49.5% of the endowments' total assets were in domestic equities, representing a drop of one percentage point from the year before.
The poorly performing equities markets plus allocations to other asset classes took a sliver out of domestic equities' share of the pie.
The $543 million endowment of Carleton College, Northfield, Minn., exemplifies how equities dragged down performance. The fund, with 50.4% of assets in domestic equities, returned -8.9% for the year ended June 30. The endowment also has a 29.6% allocation to alternative investments and a 20% allocation to fixed income.
As a result of the fallout of domestic equities, domestic bonds increased their standing in the average asset allocation by 1.9 percentage points, to 23.2% for the year.
"Domestic bonds would grow as a percent of the total even if the amount invested remained the same," said Mr. Goldstein.
There was an apparent exodus of assets from venture capital in the year. Large endowments with more than $1 billion in assets made the most apparent vote of no confidence, reducing their allocation 6.4 percentage points to 6.2% of total assets. The average asset allocation to venture capital dropped 0.9 percentage points to 1.5% of total assets for all 610 endowments. "There was a conscious decision on the part of many endowments to reduce exposure to VC. There were fewer good quality VC opportunities out there," said Mr. Goldstein in the e-mail. In addition to reducing exposure, endowments also sustained losses because of the poor performance of venture capital investments.
Endowments became more confident in hedge funds. The average allocation to hedge funds among all endowments increased 0.8 percentage points to 2.9% of total assets. Allocations went up four percentage points to 9.6% of assets for endowments with more than $1 billion in assets. The $500 million to $1 billion group's average allocation to hedge funds rose to 5.8% of total assets, up from 5%.
"The increase in hedge exposure is the result of the asset allocation changes that shifted exposure from VC to hedge," said Mr. Goldstein. "It was a specific decision on the part of many larger endowments."