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 high”.
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, volatile market.
“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.”