US college and university endowments’ net
returns declined for the second straight year in 2016, dropping
into negative territory and posting their worst results since
the financial crisis.
Statistics from NACUBO-Commonfund's annual study show an
average -1.9% return last year across 805 campuses holding a
combined $515.1bn in assets.
The poor performance follows an underwhelming 2.4% average
return in 2015 and drags the 10 year average performance to
June 2016 down to 5%.
John Walda, chief executive of NACUBO - a nonprofit
organisation representing financial officers at US colleges -
said the 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," he added.
Meanwhile, colleges and universities are continuing to raise
their endowment spending dollars to fund student financial aid,
research, and other vital programs.
At the same time William Jarvis, executive director of
Commonfund Institute, said institutions are responding to the
lower investment results by adjusting their average return
expectations, which, he said, had become "unrealistically
Fixed income returned 3.6% for the funds in 2016 while the
average return from US equities was -0.2% compared with a
positive 6.4% a year ago.
Private equity real estate (non-campus) provided the highest
return (7.1%) among alternatives. The poorest performer in 2016
was commodities and managed futures at -7.7%.
Darius Grant, head of endowments and foundations at
financial technology specialist RiskFirst, said the latest
statistics simply cannot be attributed to the low-yielding,
"It’s crucial that endowments also look at how
they integrate investment ideas, manager selection, economic
prognosis and financial management (e.g. spending formula) into
a holistic and coherent investment strategy.
"Developments in risk technology make it relatively easy to
build a holistic model of the endowment portfolio and to run
literally thousands of scenarios to test various investment
hypotheses under different economic prognoses.
"Ignoring such developments – which are now in
reach of even the smallest endowments and consultants
– doesn’t mean that endowments stand
still, but rather that they move backwards as other investors
seize a competitive edge."