Boston-based Harvard led the 33rd annual survey of U.S. endowments by the National Association of College and University Business Officers, Washington, with $22.1 billion in its endowment pool as of June 30, a 17.5% increase from the same date in 2003.
The endowment at Yale, New Haven, Conn., totaled $12.7 billion at midyear, with growth from contributions and investment returns of 15.5%.
Rounding out the top five were: the University of Texas System, Austin, with $10.3 billion (up 18.7%); Princeton University, Princeton, N.J. (up 13.7%), and Stanford University, Menlo Park, Calif. (up 15.2%, based on Aug. 31 data), in a near tie with each endowment topping $9.9 billion.
The TIAA-CREF Institute, New York, surveyed 747 endowments with assets totaling $267 billion on behalf of NACUBO. All performance and data are as of June 30, unless otherwise noted.
NACUBO found the assets of nearly all of the endowments surveyed were up in 2004. In fact, U.S. endowments enjoyed their highest average one-year return — 15.1% — since 1998, according to NACUBO's data. The average 2004 return represents a significant jump up from the 3% average return for endowments as of June 30, 2003.
The reason for the big bump was simple: Equity returns were up sharply in 2004, which benefited many equity-heavy endowments, said Mimi Lord, associate director of the TIAA-CREF Institute.
Market returns for the year were 20.5% for the Russell 3000 index, and 0.3% for the Lehman Brothers Aggregate Bond index. By comparison, the Russell 3000 returned 0.8% for the year ended June 30, 2003, and the Lehman Aggregate returned 10.4%.
The survey generally found little difference between the investment profile of the endowments of public vs. private institutions, but did point to a strong correlation between size and performance.
Endowments larger than $1 billion returned an average of 17.2% for the year ended June 30 and endowments with between $500 million and $1 billion returned an average of 17.9%. Average performance of smaller endowments was significantly lower, with a 16% return for endowments with between $100 million and $500 million; 14.7% for $50 million to $100 million; 14.8% for $25 million to $50 million; and 12.4% for endowments with less than $25 million. NACUBO found the drop in performance related to diminished endowment size persisted over longer time periods, of up to 10 years.
NACUBO also found that the largest endowments (with more than $1 billion in assets) had a much smaller range of annual returns — 8.6 percentage points — with the highest return at 21.1% and the lowest at 12.5%. The largest range of returns — 25.5 percentage points — was shown by endowments with between $50 million and $100 million, where the highest return was 24.9% and the lowest return was -0.6%.
Overall, the average allocation by endowments to equities was up 2.8 percentage points to 59.9% in 2004, compared with the prior year. NACUBO noted the overall increase in average equity allocations was the first such rise in five years. Fixed-income allocations were down to an average 22.1% from 25.9% the year before. The real estate, private equity and venture capital average allocations were all static in a year-to-year comparison at 2.8%, 1.3% and 0.8%, respectively; hedge funds were up 1.2 points to 7.3%; natural resources were up a scant 0.2 points to 0.6%. The remainder was in cash.
Endowment size also was a significant factor when it came to asset allocation, the report's authors found: As asset size increased, allocations to alternative investments increased while equity and fixed income fell.
Institutions with endowments greater than $1 billion had an average asset allocation of 46.3%, equity; 15.2%, fixed income; and 28.6%, alternatives (hedge funds, private equity and venture capital).
Midrange endowments, with between $100 million and $500 million, reported average allocations of 59.1%, equity; 19.5%, fixed income; and 13.2%, alternatives. The smallest endowments had average allocations of 61.7%, equity; 27.3%, fixed income; and 2%, alternatives.
Across all size categories, NACUBO reported a sharp increase — 5.7 percentage points — over the past 10 years in average allocations to hedge funds to 7.3%. By contrast, the average allocation to private equity was up only 1.1 percentage points in 2004 compared with 1995 to 1.3% and venture capital was up just 0.2 percentage points over 10 years to 0.8%. The average allocation to venture capital peaked at 2.4% in 2000 and has been dropping ever since, NACUBO data showed.
Once again, size mattered, with endowments larger than $1 billion reporting an average allocation to hedge funds of 20.2%, compared with 1.8% for institutions with less than $25 million. Similarly, $1 billion-plus endowments reported an average allocation of 4.9% to private equity and 3.5% to venture capital, compared with 0.2% and none, respectively, for endowments with less than $25 million.