U.S. educational endowments earned an average net annual total return of 9.7% in fiscal 2005, down from 14.7% the previous year, according to the Commonfund Institute's Benchmarks Study. Institutions expect returns to decline to 8% in 2006.
Endowments' average three-year returns are 9.6%, and five-year returns are 3.5%.
Top decile endowments reported returns of 13.7% for fiscal 2005, which ended June 30. Those funds increased their average alternative investment allocation to 44% from 31% in fiscal 2004 and decreased equity allocations to 22% from 29%.
Overall, endowments decreased their average domestic equity allocation by two percentage points to 28%, raised fixed income a percentage point to 16%, increased international stocks by two percentage points to 18, increased alternative investments one percentage point to 35%, and decreased cash a percentage point to 3%.
In 2006, 32% of institutions expect to increase their alternatives allocations; 24% anticipate a decrease in domestic equity allocations; and 16% expect to decrease allocations to cash and short-term investments, said John S. Griswold, executive director of the Commonfund Institute.
