College Endowment Returns Fell in Fiscal 2018

"These data show that students and their families are the ultimate beneficiaries of institutions' endowed funds. We remain concerned, however, about the below-target long-term rates of return, which have made it much more difficult for colleges and universities to increase endowment spending to support their missions."

Even though the long-term returns remain below 6%, institutions continued to increase their endowment spending dollars. In fiscal 2018, 66% of schools that participated in the study reported raising their spending, and among those institutions, the median increase was 6.6%, well above the 2.8% rate of inflation as measured by the Commonfund Higher Education Price Index.

"Endowments are playing a bigger role in institutions' operations, funding an average of 10% of the operating budget in 2018," Kevin O'Leary, chief executive of TIAA Endowment and Philanthropic Services, said in the statement.

"Given the role endowments play to fulfill institutional missions — and their sensitivity to policy and management decisions — a more comprehensive approach to endowment management has become pivotal to the success of higher education institutions."

FY18 in Retrospect

According to the study, the average asset allocation in fiscal 2018 of the institutional participants showed very little change from fiscal 2017. For the statistics representing all participants organized by total endowment market value, the major asset class categorizations were all virtually unchanged from the prior year's survey results in the combined statistics:

• U.S. equities: 16%
• Fixed income: 8%
• Non-U.S. equities: 20%
• Alternative strategies: 52%
• Short-term securities/cash/other: 4%

Returns were lower in fiscal 2018 for study participants compared with the previous year in four of the five primary asset class categories. Only alternative strategies provided higher returns: 8.3% vs. 7.8%.

Non-U.S. equities, which produced last year's highest return, 20.2%, fell to 6.8% in fiscal 2018, the biggest year-over-year decrease in percentage points. U.S. equities returned 13.6%, down from last year's return of 17.6%. Fixed income came in at 0.5%, down from 2.4%, and short-term securities/cash/other returned 1.3%, slightly less than last year's 1.4%.

According to the study, larger institutions posted higher average returns than smaller ones in fiscal 2018, in part because they had meaningfully higher allocations to alternative strategies, particularly private equity and venture capital.

Colleges and universities in the study reported $9.9 billion in total new gifts to their endowments in fiscal 2018.  Median gift levels experienced positive growth in the last two years, up from $3.2 million last year to $3.7 million this year — ranging from $376,000 for smaller institutions to more than $50 million for those with $1 billion or more.

The median gift value of public institutions outpaced that of private institutions, at $5 million and $3.1 million, respectively.