Educational endowments returned an average -18.7% for the year ended June 30, according to a joint NACUBO-Commonfund Institute report.
One of the report's authors, Bill Jarvis, managing director of the Commonfund Institute, called it the worst investment return in recent memory.
The return for the first five months of the year ended June 30 was -22.5%, according to the National Association of College and University Business Officers and Commonfund Study of Endowments.
Average three-year returns were -2.5%, five-year returns were 2.7% and returns for the 10-year time period were 4%. All three figures are annualized.
The study includes 842 U.S. institutions of higher learning, representing $306 billion in endowment assets.
Only fixed income, at 3%, and short-term securities/cash, at 0.8%, had positive returns for the 12 months. Among the worst performing classes were international equities at -27.6% and domestic equities, -25.5%.
Mr. Jarvis said in an interview that despite the severe losses, administrators aren't “turning away from the endowment model” that relies more heavily on alternative investments. He noted that alternative strategies returned -17.8%, beating the overall average return by more than 100 basis points.
Dollar-weighted asset allocations for the endowments studied were 51% alternatives, 18% domestic equities, 14% international equities, 13% fixed income and 4% short-term securities/cash/other.
Total average long-term debt stood at $167.8 million by the end of the fiscal year 2009, up 54% from a year earlier.
“I think the lesson the largest universities learned was that operationally one needs a liquidity reserve, whether in the endowment or the operating budget,” John S. Griswold, Commonfund executive director, said in an interview.
Mr. Jarvis said that some universities depend on their endowment for as much as 40% of their operating budget, which caused them to turn to debt when the value of the endowments began to fall.
Among endowments with more than $1 billion in assets, the $2.1 billion New York University fund had the best returns, at -15.4%. The $1.45 billion Purdue University endowment returned -16%; the $5.17 billion Trustees of the University of Pennsylvania and $1.4 billion University of Toronto, both -16.8%; the $1.34 billion Trustees of Boston College, -17.8%; and the $1 billion endowment of Michigan State University, -18.3%
The $25.6 billion Harvard University endowment, at -29.8%, was the worst performer among endowments with more than $1 billion in assets. The next four worst performers were the $16.3 billion Yale University endowment, -28.6%; the $4.4 billion Duke University fund, -27.5%; the $1.07 billion Grinnell College endowment, -26.9%; and the $12.6 billion endowment of Stanford University, -26.7%.
