The average return of educational endowments for the fiscal 2014 increased to 15.8% from 11.7% last year, according to the preliminary data from the National Association of College and University Business Officers (NACUBO) Commonfund Study of Endowments (NCSE).
The preliminary results of the study were based on data obtained from 426 college and university endowments and affiliated foundations as of October 2014.
Average returns based on endowments’ size
The NCSE divided the data into six categories based on the size of the endowment ranging from institutions with less than $25 million to more than $1 billion in endowment assets.
According to the study, larger endowments achieved the highest returns this year. Endowments with more than $1 billion in assets generated an average return of 16.8%. Those with assets between $501 million and $1 billion gained an average of 16.2%.
Endowments with less than $25 million of assets generated an average return of 16.1% this year. The study indicated that the returns of the other three size groups recorded returns from 15.3% to 15.6% this year.
The NCSE emphasized that the endowments’ investment returns were net of fees during the fiscal year.
John D. Walda, president and CEO of NACUBO commented, “These higher returns will be a great benefit to students and faculty at colleges and universities. Additional resources generated by endowments will continue to help fund vital research, financial aid and other programs at our institutions.”
Endowments average annual returns for three, five and ten years
The study’s preliminary data from a smaller sample of 129 institutions showed that the three-year average annual returns were 8.9%. The trailing average five-year annual return was 11.7% and trailing 10-year average return was 7%.
John S. Griswold, executive director at Commonfund Institute said, “With only a few exceptions, higher relative performance by the largest endowments is in keeping with the findings of our studies over more than a decade.”
He added that smaller endowments benefited from strong performance of liquid domestic and international equities starting 2009. Smaller endowments normally have the largest allocations to traditional asset classes.
Griswold also noted that the largest endowments practiced greater diversifications and focused on a variety of sources of return both public and private, which seemed resulted in long-term investment performance.
The NCSE 2014 final and complete data from more than 830 institutions will be released on the latter part of January next year.