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A Good Year for Endowments

January 24, 2005

For college endowments, 2004 was a very good year -- with an average return of 15.1 percent, according to data released today by the National Association of College and University Business Officers.

But after several years in which most colleges posted modest gains or lost money, NACUBO warned that the strong figures from one year would not offset the damage of the economic downturn. The five-year average for endowment returns (including the 2004 successes) is only 3.8 percent. When factoring in inflation and the money colleges spent from their endowments, many endowments are no stronger than they were five years ago.

The endowments that are doing the best are those that were already the strongest. Over the last five years, colleges with endowments greater than $1 billion enjoyed an average return of 7.5 percent (with a 17.2 percent return in 2004). In contrast, colleges with endowments of $25 million or less earned an average return of 2.4 percent in the last five years (with a 12.4 percent return in 2004).

Why do the rich get so much richer? Investment strategies vary from institution to institution, but generally, wealthier colleges (like wealthier individuals) use a wider variety of investments, and feel flush enough to put money in high-risk, but potentially high-return, investments. So most wealthy institutions invest significantly in hedge funds, and also put money in private equity, natural resources, and real estate -- all areas that colleges with modest endowments would generally avoid.

The gaps among institutions are large and growing. Harvard tops the list of endowments at $22.1 billion and Yale is second at $12.7 billion. But only 47 colleges reported endowments worth more than $1 billion, and just 6 have endowments that exceed $5 billion. In fact, the gains in Harvard's endowment this year -- just under $3.3 billion -- equal the entire combined endowments of Amherst College, Southern Methodist University, Carnegie Mellon University, and Colorado College. (And those four institutions are all among the wealthiest 100 in the United States.)

Eight institutions saw their endowments pass the $1 billion threshold in 2004: Boston, Pomona, and Swarthmore Colleges, the Universities of Illinois and Richmond, and Indiana, Penn State, and Yeshiva Universities.

The NACUBO study does not provide information on the investment returns of individual colleges. But it does release information on the endowment growth of institutions. Growth is influenced by investment returns, but also gifts to the endowment, spending of endowment funds, and other factors.

The following table shows the top 20 endowments, and their gains in 2004:

Rank Institution 2004 Endowment Value % Growth in Year
1 Harvard $22,143,649,000 17.5
2 Yale $12,747,150,000 15.5
3 U of Texas System $10,336,687,000 18.7
4 Princeton   $9,928,200,000 13.7
5 Stanford   $9,922,000,000 15.2
6 MIT   $5,865,212,000 14.3
7 U of California   $4,767,466,000   9.1
8 Emory   $4,535,587,000 12.8
9 Columbia   $4,493,085,000   3.5
10 Texas A&M System   $4,373,047,000 15.0
11 U of Michigan   $4,163,382,000 20.2
12 U of Pennsylvania  $4,018,660,000 13.3
13 Washington U.   $4,000,823,000 15.3
14 Northwestern  $3,668,405,000 20.2
15 U of Chicago  $3,620,728,000 12.4
16 Duke  $3,313,859,000  9.8
17 Rice  $3,302,455,000 12.4
18 Cornell  $3,328,350,000 13.4
19 Notre Dame  $3,095,703,000 20.3
20 U of Virginia  $2,793,225,000 55.1

Among community colleges in the NACUBO study, the following are the five largest endowments. (Rank refers to rank among all institutions.)

Rank Institution 2004 Endowment Value % Growth in Year
599 Harrisburg Area CC (Pa.) $25,735,000 16.6
608 Pasco-Hernando CC (Fla.) $23,895,000 10.3
647 Sinclair CC (Ohio) $17,476,000 15.5
655 Kentucky CC System $16,428,000 15.5
660 Florida CC at Jacksonville $15,756,000 34.3

Among historically black colleges in the NACUBO study, the following are the five largest endowments. (Rank refers to rank among all institutions.)

Rank Institution 2004 Endowment Value % Growth in Year
132 Howard $371,160,000 17.0
182 Spelman $244,079,000 11.3
216 Hampton $185,834,000 11.1
311 Morehouse $107,240,000 12.4
467 Dillard   $46,573,000   4.9

The following are the 12 colleges that saw endowment growth of more than 50 percent. (Rank refers to rank among all institutions.)

Rank Institution 2004 Endowment Value % Growth in Year
149 Olin College of Engineering    $312,003,000 884.4
131 Medical College of Wisconsin    $372.535,000 565.7
574 Northern Michigan      $29,312,000 142.6
696 Norfolk State        $9,258,000   92.8
130 Furman    $384,540,000   66.1
243 U of San Diego    $157,117,000   62.0
198 Rollins    $211,543,000   57.5
465 Roosevelt      $46,689,000   55.8
  20 U of Virginia $2,793,225,000   55.1
666 Columbia College (Mo.)      $14,665,000   54.3
473 Texas Lutheran      $45,892,000   53.1
501 California Lutheran      $40,171,000   50.2

The following are the 11 colleges with endowments that lost money in the last year. (Rank refers to rank among all institutions.)

Rank Institution 2004 Endowment Value % Loss in Year
669 Aquinas (Mich.)   $14,265,000 -19.0
618 Regis (Mass.)   $22,049,000 -13.4
249 Johnson & Wales $153,345,000   -5.8
312 Centenary of Louisiana $105,661,000   -3.1
211 Cooper Union $191,144,000   -2.7
597 McPherson   $25,821,000   -2.0
584 E. Va. Medical School   $26,908,000   -1.3
320 Hanover $100,611,000   -1.3
737 Pellissippi State CC     $2,766,000   -1.2
720 Cornerstone     $5,668,000   -0.6
248 Rose-Hulman Inst of Tech $153,658,000   -0.2

A complete version of the endowment report will be available on CD-ROM in February. The price is $69.95 for NACUBO members and $199.95 for others. Advance orders may be placed at (866) 348-6300.

 

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