The Rich Get Richer

Endowments saw average return of 9.3 percent in fiscal 2005 -- with greatest gains going to institutions that were already wealthy.
January 23, 2006

The 2005 fiscal year was generally good to college endowments, which saw an average rate of return of 9.3 percent, according to data being released today by the National Association of College and University Business Officers.

While the average rate of return was less than the previous year's average (15.1 percent), the 2005 average return exceeded investment industry benchmarks. And NACUBO's report about the data described the figure as "optimal" in that it would allow the vast majority of colleges to support their operations while accounting for inflation and investment fees. The overwhelming majority of colleges saw increases in 2005, with only scattered exceptions -- notably among private colleges in Georgia, where Coca-Cola has historically fueled endowments and the declines in the company's stock have hit some institutions hard.

While most institutions did well in 2005, the endowment study reflects the extent to which the best way to make a lot of money is to have a lot of money to start with. For colleges with endowments over $1 billion, the average return was 13.8 percent, while the average for those up to $25 million was 6.9 percent. At levels in between, there was a direct correlation between size of endowment and rate of return.

Generally, colleges with larger endowments are able to take more risks with portions of their portfolios -- and those risks can result in substantial gains. And several institutions that are not in the mega-endowment category, but that performed quite well this year, credited a willingness to try some bolder investment strategies than they had used in the past.

Gaps between institutions in the endowment survey are substantial. Harvard University's $25 billion fund tops second place Yale University by more than $10 billion. The growth alone in Harvard's endowment during the last year exceeds the size of the entire endowment of the University of Southern California or the University of Virginia. If you added up the endowments of the 10 historically black colleges with the largest funds, they would not equal the endowment of Williams College. Add up the endowments of the 10 community colleges with the largest funds and they don't equal the endowment of the University of South Florida.

The colleges with the larger endowments tend to have much more diversified investments -- and this year's data from NACUBO back up that trend. Among the 56 colleges with endowments of at least $1 billion, hedge funds make up 21.7 percent of their portfolios and venture capital 3.6 percent. For colleges with endowments greater than $100 million and up to $500 million, comparable shares would be 11.4 percent hedge funds and 1.1 percent venture capital. The smaller the endowment, the greater the share in equity and fixed income funds.

Still, colleges without Harvard-sized endowments are finding ways to do well. For example, Dickinson College, a liberal arts college in Pennsylvania, saw its endowment increase to $206 million this year -- an increase of 29.8 percent (just about twice the percentage increase at Harvard). Annette S. Parker, vice president and treasurer there, attributed the gains to changes in the college's investment strategy during this decade.

The college's board made its investment committee smaller -- "to be more agile," Parker said -- and created a group called the Young Turks, Dickinson alumni in the investment world. With advice from those alumni, along with consultants, the board has shifted funds into and out of investment categories that were once considered off limits to smaller colleges. The college has scored in recent years in distressed debt (debt of companies at high risk of failure), hedge funds and private equity -- recruiting Young Turks along the way with expertise in those areas.

Parker said that the project has not only been a financial success for the endowment, but has built relationships with young alumni in the finance world who value being asked for their advice, not just their contributions.

At Clarkson University, hedge funds now make up about 15 percent of the endowment -- up from essentially nothing just a few years ago, according to James D. Fish, comptroller. Had the university not done so, Fish doubts that it would have had as good a return -- 10.9 percent -- on its investments as it did this year. Clarkson is a good illustration of another key point about endowments: Below the higher endowment levels, gifts can have as much of an impact on endowments as can investment returns.

Clarkson's endowment grew by 36.6 percent during 2005, Fish said -- primarily because of some bequests and large gifts. Similarly, the 78.7 percent increase in the investments at Wright State University during 2005 is primarily because of one single gift of $28.5 million for the institution's medical school.

The last fiscal year was not a good one for endowments of a number of Georgia colleges. Of the 746 colleges and universities in the survey, only 31 reported declines and 6 of them were in Georgia. Of those colleges nationally reporting declines, the four with the largest endowments were all Georgia institutions: Emory University, Barry College, Agnes Scott College and the Georgia Institute of Technology. Other institutions from Georgia that lost endowment funds were LaGrange College and Brenau University. Of the endowment-losing Georgia institutions, only Georgia Tech is public.

One factor at play at some of these institutions is the legacy of Atlanta-based Coke, which has for years been a huge base of corporate philanthropy and which saw some significant stock drops during the 2005 fiscal year. Mary Cahill, chief investment officer at Emory, said that leaving aside Coke holdings, Emory would have seen its endowment grow in 2005. Instead, it lost about $150 million, or 3.5 percent of its value. Also during 2005, Emory sold all of its Coke holdings except for a few trusts that cannot be sold, Cahill said.

With Coke stock gone, Cahill said, "we won't see the great contributions when Coke goes up, but we also won't see the decreases."

Colleges ultimately need to avoid being too attached to any one stock or investment, Cahill said. "You can build wealth with a single stock, if it's the right stock," she said. "But it's very difficult to maintain wealth with the exposure of a single stock."

Following are tables showing the top endowments over all, among liberal arts colleges, Canadian universities, historically black colleges, and community colleges, as well as a list of the colleges with the largest endowments that were money-losers in 2005. The endowment value is from the last day of the 2005 fiscal year. The percentage change figures do not reflect rate of return, but total change in endowment value. So the changes are affected by such factors as gifts to the endowment and spending of endowment funds. The rank figure refers to the colleges' ranks among all survey participants. So Grinnell College, first among liberal arts colleges, is 35 among all institutions. 

Top 25 Endowments

Rank Institution 2005 Endowment Value 1-Year % Change
1 Harvard U $25,473,721,000 +15.0%
2 Yale U  15,224,900,000 +19.4%
3 Stanford U  12,205,000,000 +23.0%
4 U of Texas System  11,610,997,000 +12.3%
5 Princeton U  11,206,500,000 +12.9%
6 Massachusetts Inst of Tech    6,712,436,000 +14.4%
7 U of California    5,221,916,000   +9.5%
8 Columbia U    5,190,564,000 +15.5%
9 Texas A&M U    4,963,879,000 +13.5%
10 U of Michigan    4,931,338,000 +18.4%
11 Emory U    4,376,272,000    -3.5%
12 U of Pennsylvania    4,369,782,000    +8.7%
13 Washington U in St. Louis   4,268,415,000   +6.7%
14 Northwestern U   4,215,275,000 +14.9%
15 U of Chicago   4,137,494,000 +14.3%
16 Duke U  3,826,153,000 +15.5%
17 Cornell U  3,777,092,000 +16.6%
18 U of Notre Dame  3,650,224,000 +17.9%
19 Rice U  3,611,127,000   +9.3%
20 U of Virginia   3,219,098,000 +15.2%
21 U of Southern California  2,746,051,000 +14.4%
22 Dartmouth C  2,714,300,000 +10.6%
23 Vanderbilt U  2,628,437,000 +14.5%
24 Johns Hopkins U  2,176,909,000   +5.9%
25 U of Minnesota  1,968,930,000 +13.8%

Top 10 Liberal Arts College Endowments

Rank Institution 2005 Endowment Value 1-Year % Change
35 Grinnell C $1,390,545,000   +7.6%
37 Williams C   1,348,374,000  +9.7%
39 Pomona C   1,298,629,000 +13.0%
40 Wellesley C   1,275,529,000  +8.1%
45 Swarthmore C   1,164,069,000  +7.8%
46 Amherst C   1,154,570,000 +16.2%
53 Smith C   1,035,542,000 +12.0%
63 Berea C       861,679,000  +8.4%
80 Middlebury C       721,839,000  +8.6%
82 Oberlin C       704,329,000 +18.6%

Top 5 Canadian University Endowments

Rank Institution 2005 Endowment Value (U.S. $) 1-Year % Change
43 U of Toronto $1,201,517,000 +24.4%
86 McGill U       641,028,000 +11.3%
88 U of British Columbia       619,262,000 +18.3%
114 U of Alberta       484,800,000 +12.7%
128 Queen's U       432,061,000 +23.4%

Top 10 Historically Black College Endowments

Rank Institution 2005 Endowment Value 1-Year % Change
136 Howard U $397,657,000   +7.1%
185 Spelman C   258,054,000   +5.7%
219 Hampton U  199,030,000   +7.1%
320 Morehouse C  112,215,000   +4.6%
446 Meharry Medical C    55,390,000 +19.6%
499 Dillard U    45,104,000    -3.2%
517 Johnson C. Smith U    40,891,000 +14.3%
532 Morehouse School of Medicine    38,491,000 +19.7%
586 Bethune-Cookman C    29,000,000 +13.5%
659 Saint Augustine's C (NC)    18,429,000  +1.6%

 Top 10 Community College Endowments

Rank Institution 2005 Endowment Value 1-Year % Change
460 Valencia CC (Fla.) $52,864,000  +8.2%
605 Harrisburg Area CC (Pa.)   26,208,000  +1.8%
640 Sinclair CC (Ohio)   20,697,000 +18.4%
648 Ky. Community Tech System   19,501,000 +18.7%
652 Fla. CC at Jacksonville   18,949,000 +20.3%
715 Patrick Henry CC (Va.)     8,513,000     n/a
717 Montgomery C (Md.)     8,174,000 +18.3%
730 Midlands Technical C (S.C.)     5,245,000   +3.7%
733 Centralia C (Wash.)     4,851,000 +16.8%
734 Macomb CC (Mich.)     4,738,000   +4.8%

 10 Largest College Endowments Posting Losses

Rank Institution 2005 Endowment Value 1-Year % Change
11 Emory U $4,376,272,000   -3.5%
104 Berry C      516,135,000 -11.3%
167 Agnes Scott C     282,327,000   -6.0%
182 Georgia Inst of Tech     262,902,000 -13.1%
192 Regent U     242,576,000   -3.8%
350 Sweet Briar C        91,762,000   -1.3%
356 Fuller Theological Seminary        86,318,000   -3.7%
369 U of Montana        78,558,000   -1.9%
372 Drury U        77,433,000   -3.3%
414 Hiram C        62,671,000   -1.8%



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