A graduation at Harvard Law School.

U.S. college and university endowments returned an average of 5.3% net of fees for fiscal 2019 (ended June 30), down from 8.2% in fiscal 2018, according to the 2019 NACUBO-TIAA Study of Endowments released Thursday.

Despite the lower return, the average 10-year endowment return hit 8.4%, surpassing institutions’ long-term average 7% return goal for the first time in a decade. The report said this reflected both the strong stock market and solid management practices.

According to the report, although one-year returns are important indicators, many endowments reference 10-year average annual returns when measuring performance.

It said the increase in the fiscal 2019 10-year average return over fiscal 2018 was due mainly to removal from the calculation of the fiscal 2009 return of -18.7% that occurred during the financial crisis.

Thanks in part to strong 10-year returns, three in four of the 744 institutions that participated in the new study increased spending from their endowments to support students and faculty, with an average increase of some $2 million.

These institutions put 49% of their endowment spending dollars to student financial aid, 17% to academic programs, 11% to faculty and 7% to campus facilities.

“The jump in spending from endowments last year shows once again the value of college and university endowments in supporting students and their access to a high-quality education,” Nacubo’s president and chief executive Susan Johnston said in a statement.

The 744 institutions in the study represented $630 billion in total endowment assets as of June 30. The median endowment was approximately $144 million, and 39% of study participants had endowments of $101 million or less.

Asset Allocation 

The fiscal 2019 report said study participants’ average asset allocation changed little from the previous fiscal year. On a dollar-weighted basis, the largest allocations were to marketable alternatives, 19.1%; non-U.S. equities, 14.5%; U.S. equities, 14.1%; real assets, 12.3%; fixed income, 11.7%; and cash/other, 1.7%.

According to the report, lower market returns in fiscal 2019 accounted for the lower average endowment return, compared with the previous fiscal year.

Specifically, global equity markets, measured by the Morgan Stanley Capital Index All Country World Index, returned 5.7% versus 10.7% in fiscal 2018, and the S&P 500 index returned 10.4% versus 14.4%. The Bloomberg Barclays U.S. Aggregate Bond Index was up 7.9%, compared with negative 0.4% in fiscal 2018.

Larger exposures to buyout and venture capital investments drove strong fiscal 2019 performance by the biggest institutions, those with more than $1 billion in assets. The second best-performing cohort were those with assets of $25 million or less.

“Endowment asset allocations and returns varied across different size endowment cohorts,” Kevin O’Leary, chief executive of TIAA Endowment and Philanthropic Services, said in the statement.

“Considering larger endowments generally have greater access to certain asset classes, such as private equity and venture capital, which were some of the highest performing asset classes in FY19, they again outperformed their smaller cohorts.”

Venture capital, private equity and U.S. equities were the three top-performing endowment asset classes in fiscal 2019, returning 13.4%, 10.2% and 8.2%, according to the study.

In addition, portfolios that had meaningfully higher exposures to public or private U.S. equity and fixed income investments outperformed their peers, while those with higher exposures to international equities tended to underperform.

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