A number of institutions increased practicing risk limits, guidelines and stress tests in managing their portfolios
Educational Endowments attained a 15.5% average investment returns for the fiscal 2014, according to the NACUBO-Commonfund Study of Endowments based on the final data from 832 colleges and universities in the United States.
During that fiscal 2013, educational endowments recorded 11.7% average investment returns.
Institutions increased spending from endowments
The study found that the increasing return rates of educational endowments allowed colleges and universities to increase their spending to support student financial aid programs, faculty research and other activities critical to their missions.
Seventy four percent (74%) of the colleges and universities indicated that they increased their spending from their endowments. The study showed that the educational institutions increased their spending at an average of 9.3%.
The endowment funds accounted for 9.2% (on average) of the total operating budgets of the educational institutions in 2014, higher than the 8.8% average in 2013.
Educational Endowments generated highest returns from domestic equities
According to the study, educational endowments generated the highest returns of 22.8% from domestic equities followed by international equities at 19.2% last year.
Educational endowments recorded 12.7% returns from their investments in alternative strategies, 5.1% from fixed-income and 1.9% from short-term securities, cash and others.
The returns of the educational endowments from all of the asset classes were higher in 2014 were higher than in 2013.
John Griswold, director of Commonfund Institute observed that the participating endowments showed increasing emphasis on risk management based on the return data.
According to him, a number of institutions clearly increased practicing risk limits, guidelines and stress tests in managing their portfolios.
Based on the study, the educational endowment achieved the largest returns from venture capital at 23.3% among their investments in alternative strategies. The percentage was almost four times compared with the 6.1% returns achieved in the previous year.
The educational institutions obtained 16.5% returns from private equity, 15.3% from energy and natural resources, 13.2% from distressed debt, 12.6% from private equity real-estate and 7.9% from marketable alternative strategies.
Educational Endowments’ long-term returns
The study found that educational endowments achieved 9% average investment returns over the past three years, 11.7% average returns over the past five years and 7.1$ over the past 10 years.
John D. Walda, president and CEO of NACUBO commented, “Perhaps the most significant finding is the rise in longer-term returns, which will be very beneficial to colleges and universities that are seeking to serve a broader variety of students than ever before. A higher level of long-term returns enables them to support their missions while remaining on a sound financial footing.”