Independent schools return 12.3% for fiscal year, responsible investing dips — Commonfund-NBOA study

Independent school endowments produced a net average return of 12.3% during the fiscal year ended June 30, according to an annual study by the Commonfund Institute and the National Business Officers Association.

The study — which compiled return results for fiscal year 2024 from private, nonprofit institutions that enroll students from kindergarten through 12th grade — showed a second consecutive year of positive returns, following the prior fiscal year’s average return of 9.2%. It also marked the first time since the 2020 fiscal year in which one-year returns did not drastically fluctuate.

“Despite pressures from markets, inflation and enrollment, this year’s study shows that long-term endowment gains can serve as an anchor of stability for institutions,” said George Suttles, Commonfund Institute executive director, and Jeffrey Shields, NBOA president and CEO, in a joint statement.

The annualized three-, five- and 10-year returns for periods ended June 30 were 3.5%, 7.7% and 6.7%, respectively. For the first time, the study also collected the average returns for the trailing 15- and 20-year periods, which were 8% and 6.9% respectively.

The 221 independent schools that participated in the study reported total endowment assets of about $15.6 billion. Data for the 2023 fiscal year came from 210 schools that represented a combined $12.7 billion in assets.

As of June 30, schools had an average asset allocation of 35% U.S. stocks, 30% alternative strategies, 17% international stocks, 14% fixed income, and 4% short-term securities, cash and other asset classes. The study noted there were minimal changes in asset allocations from 2023.

By size, school endowments with less than $10 million in assets produced the highest one-year return of 13.5%. These schools had average allocations of 53% domestic stocks and 1% alternatives.

Larger school endowments with more than $50 million in assets generated the lowest one-year return of 12%. In contrast with their smaller peers, endowments of this size had an average allocation of 33% domestic stocks and 34% alternatives.

In regard to responsible investing, 12% of respondents require or permit the consideration of environmental, social and governance factors in their investments — down from 15% in 2023. Additionally, 9% said they screen out investments not consistent with their institution’s mission, down from 13% the prior year — while 9% said they are required or permitted to invest in diverse managers, down from 11%.

Moreover, 64% of the study’s respondents noted that they are not considering adding negative screenings and ESG factors in their investment policies — an increase from 55% for both practices in 2023.

The study also found an increased use of outsourced CIOs among these schools — particularly 46% of all institutions that were surveyed, up from 33% in 2023. The use of OCIOs was particularly high among endowments with assets between $10 million and $50 million, up to 59% vs. 40% the prior fiscal year.