Higher education endowments tumble 13.4% in Q1 – survey

Higher education endowments returned an average -13.4% net of fees in the first quarter of 2020, according to a special survey by NACUBO and TIAA looking at the implications of COVID-19.

A similar NACUBO spot survey taken after the Great Recession reported average endowment returns of -22.5%.

"These are uncertain times," said Elizabeth Clark, NACUBO's vice president for policy and research, in an interview. "NACUBO recognized that we were in a period of deep decline and wanted to understand how it affects their investments and their stewardship decisions."

The average endowment size among the 333 schools participating in the COVID-19 follow-up survey was $547.4 million, compared to the $630.5 million average size in the regular 2019 NACUBO-TIAA Study of Endowments. All the endowments experienced losses in the first quarter, with smaller endowments reporting losses larger than endowments with at least $100 million. Endowments over $1 billion reported -11.4% returns, while those with $500 million to $1 billion returned -12.3%, and those between $250 million and $500 million returned -12.4%.

The special survey did not go into asset allocations, but the regular 2019 endowment study showed significant variability in endowment investment strategies by size of endowment assets, particularly in U.S. equities. Endowments over $1 billion had only 11.2% invested in U.S. equities, while those with $100 million or less had significantly more exposure, including 37.8% for endowments with $25 million to $50 million and 45.7% for those with $25 million or less. While that put smaller endowments at greater risk for investment losses when equity markets decline, the upside is that those institutions were less likely to rely on their endowments as a significant source of operating revenue, according to NACUBO.

Most of the institutions surveyed in the first quarter — 72% — said they expect to maintain their current policy spending rate, while 8% reported plans to increase their spending rate and 7% plan to decrease it in their fiscal year 2021, which for most schools begins July 1.

During the 2008-09 financial crisis, about half the colleges and universities reported increased endowment spending to support their campus operations.

In the regular 2019 survey, the average effective spending rate was 4.5%, which amounted to a collective $22 billion from their endowments spent on student financial aid and other campus operations. Donor restrictions and state laws often prohibit funds from being used for annual operating expenses.