U.S. college and university endowments returned an average -1.9% net of fees in fiscal 2016, ended June 30, the National Association of College and University Business Officers and Commonfund reported Tuesday.
The 2016 NACUBO-Commonfund study of 805 endowments showed that the 10-year average annual return fell to 5% from the previous year’s 6.3%.
As in fiscal 2015, the year’s long-term return figure fell short of the median 7.4% that most institutions say they need to earn in order to maintain their endowments’ purchasing power after spending, inflation and investment management costs, the study said.
Despite the decline in investment gains, three-quarters of study respondents reported that they had increased spending from their endowments this year to support their school’s mission, a median increase of 8.1%, well above the inflation rate.
“In spite of lower returns, colleges and universities continue to raise their endowment spending dollars to fund student financial aid, research and other vital programs,” NACUBO’s president and chief executive John Walda, said in a statement.
“These substantial increases in spending from endowments demonstrate the deep commitment colleges and universities have to student access and success. Nonetheless, this year’s results are cause for concern. Continued below-average investment returns will undoubtedly make it much more difficult for colleges and universities to support their missions in the future.”
Commonfund Institute’s executive director William Jarvis said colleges and universities were responding to lower investment results by adjusting their average return expectations, which had become unrealistically high.
“At the governance level, the duty of boards and investment committees to balance current and longer-term demands, which is fundamental to the goal of maintaining equity among present and future generations of students, will be even more important in the next few years,” Jarvis said.
The annual endowment report analyzes return data and related information gathered from both private and public U.S. colleges and universities, as well as their supporting foundations.