College Endowments Posted Negative Returns in FY2012

The report said fixed-income investments produced the highest return, an average of 6.8%, while international equities produced the lowest return, -11.8%. Domestic equities returned 2%, alternative strategies as a group returned 0.5% and short-term securities/cash/other returned 0.2%.

“This year’s data show the re-emergence of a number of long-term trends in the sector,” NACUBO President and CEO John Walda and Commonfund Institute Executive Director John Griswold said in a joint statement.

“Over the years, with the exception of periods such as the recent economic crisis, institutions with the largest endowments have reported the highest one-year returns. This trend can once again be seen in this year’s data, as well as data for trailing periods. ”

They attributed the outperformance to several factors:                            

• Well-diversified portfolios with an equity bias
• The ability to make long-term commitments to less liquid strategies
• Access to top-tier investment managers
• Greater resources, including larger staffs, leading-edge technology and experienced investment committees.

The long-term trend of increasing allocations to alternative investment strategies continued in 2012, according to the report. These strategies included private equity, marketable alternatives, venture capital, private equity real estate (non-campus), energy and natural resources, and distressed debt.

The year’s data indicated that participating institutions’ allocation to alternatives grew by one percentage point to 54%. The alternatives allocation was correlated by endowment size, with institutions having endowment assets in excess of $1 billion reporting a 61% allocation to alternatives and those with assets under $25 million reporting an average allocation of 11%.

The three smaller size cohorts reported the largest allocations to domestic equities and fixed income. In a continuation of a trend observed in recent years, allocations to short-term securities/cash/other were smallest among endowments with assets above $1 billion, at 3%, and largest among endowments with assets below $25 million, at 7%.

In fiscal 2012, 39% of institutions reported that they had received less in gifts than in the previous year, while 41% reported an increase in gifts. The median total of new gifts was $2.2 million, while the average total of new gifts was $8 million. Gifts were correlated with the size of the institution’s endowment; both median and average gifts were highest, by far, among institutions with assets more than $1 billion.