Return on college endowments rises for third straight year
USA Today 1/10/07
That's lower than the return from the Standard & Poor's 500 stock index, which gained 15.8% last year with dividends reinvested.
But it's up from a 9.7% average return among colleges in 2005, and it's an improvement over declining returns among colleges and universities earlier in the decade.
"We've seen now three years of really pretty good returns," says John Griswold, executive director of the Commonfund Institute in Wilton, Conn., which releases the report today. The institute is the non-profit research and education arm of Commonfund, which manages investments for non-profit groups.
The report is based on 741 education institutions, primarily public and private universities but also some independent schools and private education foundations. The Commonfund findings are similar to a preliminary estimate reported last month by the National Association of College and University Business Officers, a non-profit group representing financial officers in higher education. That group estimates 10.7% in endowment earnings in 2006, compared with 9.3% in 2005.
Though returns increased for institutions of all sizes, the wealthiest institutions, which the report says typically have "larger staffs, greater resources and more experienced investment committees," reported significantly higher returns, Griswold says.
For example, private institutions, which tend to have larger endowments, averaged higher returns than public institutions: 11.2% vs. 10.1%, the report says.
Also, it says, schools with assets of more than $1 billion reported three- and five-year returns of 15.1% and 8.8%, respectively, while institutions with less than $10 million in assets reported three- and five-year returns of 10.1% and 5.9%, respectively.
In other findings, gifts to endowments declined in dollar terms to $7.3 million, compared with $7.9 million the previous year.
The health and size of a school's endowment is an indicator of an institution's long-term financial stability. It can also have an effect on a school's operating budget. Increased market values enabled more than two-thirds of respondents to increase spending in dollar terms, compared with 49% last year. Of those, the average increase was 12.9%. Though most universities are restricted in how they apply some of their money, Griswold says the growth of endowments can help moderate tuitions, which increased about 6% at four-year universities for the 2006-07 academic year. Increases were generally flatter than in the previous year.