The little guys produced big returns.
The smallest university endowments—those with assets under $50 million—gained 9.8%, on average, in the 12 months through June 30, 2023, fueled by a strong stock market, according to a study released Thursday.
Their larger brethren, those with more than $5 billion in assets, eked out lackluster 2.8% returns on average over that period. The drag on performance came from hefty positions in alternatives such as private equity and venture capital, which were either flat or had moderate declines in the period.
“The more you allocated to public equities, the better you did,” says Mark Anson, CEO of asset manager Commonfund, which conducted the study with the National Association of College and University Business Officers, or Nacubo.
Funds of all sizes returned 7.7% on average in the fiscal year, but trailed the
S&P 500
index’s 19.6% rise in the same period. That’s a rebound from fiscal 2022, when school endowments lost 8% on average. The study included 688 institutions with $839.1 billion in assets.
The study noted that the last nine months of the fiscal year provided the biggest boost for endowments, as both equities and fixed income securities experienced poor returns in the calendar year 2022.
Smaller funds tend to stick with equities, while larger funds favor private equity, hedge funds, and venture capital. Yet the attraction to alternative strategies is strong across funds. Funds of all sizes had 17% of their portfolios in private equity, 15.9% in hedge funds, and 11.9% in venture capital. Only 12.5% were in U.S. equities. Allocation breakdowns were similar to the previous year, according to the study.
Harvard University’s $50.7 billion endowment—the biggest among U.S. school funds—gained 2.9% in the fiscal year ended in June, with its manager in October noting the lag in its alternative investments holdings.
But don’t count out big funds’ ability to catch up in performance. Anson noted a “lagging effect,” in which it takes time for performance in the public markets to show up in private investments. Big endowments have posted annual average returns of 9.1% in the past 10 years, compared with 7.2% for all funds that invest across asset classes and strategies.
Universities’ rising expenses are cutting into gains. Schools withdrew $28.4 billion from their endowments in the fiscal year, a year-over-year increase of 8.4%. The average annual spending rate was 4.7%, up from 4.0% the previous year. Gifts to endowments totaled $13.3 billion, down from $14.9 billion in fiscal 2022.
The bulk of the distributions went to financial aid, with other spending directed at academic programs, research, endowed faculty positions, and operating and maintaining facilities.
Write to Mary Romano at [email protected]
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