Harvard campus.

U.S. college and university endowments returned an average of 15.8% net of fees for the 2014 fiscal year ended June 30, according to a report released Monday by Commonfund and NACUBO.

The finding was based on preliminary data from 426 institutions for the 2014 NACUBO-Commonfund Study of Endowments whose final results will be released in January.

Study participants reported an average 11.7% return for the 2013 fiscal year.

The annual study breaks data into six categories according to endowment size, ranging from schools with less than $25 million in endowment assets to those with endowments of more than $1 billion.

The 2014 preliminary report said that endowments with more than $1 billion and those with assets between $501 million and $1 billion reported the highest average returns net of fees, 16.8% and 16.2%, respectively.

They were followed by the smallest institutions, with average returns of 16.1%.

Preliminary data drawn from a smaller sample of 129 institutions showed that participating institutions’ trailing three-year annual returns averaged 8.9%, trailing five-year annual returns averaged 11.7% and trailing 10-year returns averaged 7%.

The largest endowments reported the highest returns for the trailing three- and 10-year periods, and lagged the highest five-year return by 10 basis points.

“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,” Commonfund Institute’s executive director John Griswold said in a statement. “Smaller endowments, which typically have the largest allocations to traditional asset classes, benefited from the strong performance of liquid domestic and international equities beginning in 2009.

“But the greater diversification practiced by the largest endowments and their emphasis on a variety of sources of return, both public and private, tends to result in higher long-term investment performance.”

Preliminary data showed that no asset class, strategy or sub-asset class/strategy had a negative return in fiscal 2014. Following are the preliminary fiscal 2014 and the 2013 returns broken out by major asset class:

  • Domestic equities: FY2014—22.6%; FY2013—20.6%
  • Fixed income: FY2014—5.4%; FY2013—1.7%
  • International equities: FY2014—19.6%; FY2013—14.6%
  • Alternative strategies: FY2014—12.8%; FY2013—8.3%
  • Short-term securities/cash/other: FY2014—2.7%; FY2013—1.2%

Among alternative strategies, venture capital has produced the highest return so far, 21.2%, followed by 18.4% for energy and natural resources.

Private equity returned 17%, distressed debt 13.5% and private equity real estate (non-campus) 11.7%.

Marketable alternative strategies returned 9.4%, and commodities and managed futures 9%.

Increased Allocations to Alternatives

According to preliminary study data, colleges and universities in fiscal 2014 continued to increase allocations to alternative strategies — marketable alternatives, private equity, venture capital, natural resources, distressed debt and private equity real estate.

The allocation to alternative strategies grew to an average of 58% among the early reporting institutions and to 65% among institutions with more than $1 billion in assets.

In 2013, alternative strategies accounted for an average of 53% of endowment portfolios, a one percentage point decline from the previous year.

The largest alternatives allocations in 2014, at 19% each, went to marketable alternatives and private equity.

The marketable alternatives allocation was down one percentage point year over year, while the allocation to private equity was up from 12% a year ago.

Among other asset classes, participating endowments reported that they had allocated 13% to domestic equities in FY2014, three percentage points less than in 2013; 7% to fixed income, three points less than a year earlier; and 17% to international equities, one point less than in 2013.

Endowment allocations to short-term securities/cash/other were 5%, up from 3% in 2013. Staffing, Outsourcing and Consultant Use

Endowments reported an average of 1.5 full-time equivalent employees devoted to investment management in 2014, down from 1.6 employees in 2013.

Those with more than $1 billion in assets had 11.3 full-time employees devoted to investment management, the largest average staff size among reporting endowments.

Fifty-four percent of early study respondents said they had substantially outsourced the investment management function, which would be a significant increase from last year’s 40% if this figure is confirmed in the final survey.

Seventy-eight percent of respondents to date reported using a consultant for various services related to investment management, compared with 85% a year ago.

— Check out Top 20 Richest Colleges for 2013: The Biggest Endowments on ThinkAdvisor.