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After a year of riding high, educational endowment investments began a downward spiral in the 2008 fiscal year, and the first half of 2009 was particularly brutal, according to two new reports released Tuesday.
In a joint survey, the Commonfund Institute and the National Association of College and University Business Officers found that college endowment returns dropped by 22.5 percent in the first six months of the 2009 fiscal year, which began July 1 at most institutions. Commonfund’s independent survey of the entire 2008 fiscal year showed losses of 2.7 percent, but the more up-to-date joint survey shows just how quickly things went from bad to worse.
“This is such an extraordinary fiscal year so far, hopefully not to get much worse, but we expect to see some further decline,” said John Griswold, executive director of Commonfund Institute.
Commonfund, which invests money for colleges, and NACUBO, a professional organization for college finance chiefs, have for years conducted annual independent studies of college endowments. The two groups had already planned to merge their surveys next year, but the decision to work together on a shorter-term project reflects a growing desire to examine the impact of the last few volatile months.
“In terms of doing a quick snapshot on largely the last six months, that’s the first time I think either of us have done that,” Griswold said. “It’s a recognition of how serious the problem has become.”
The joint survey included responses from 435 institutions, or about 55 percent of those asked to participate. NACUBO officials cautioned that responses constituted financial officers’ “rough estimates” of endowment performance, given the short time frame.
In a more comprehensive survey of the entire 2008 fiscal year, NACUBO and TIAA-CREF found the continuation of a long-term trend: The richest colleges performed best. Colleges with endowment assets of greater than $1 billion were the only colleges with positive investment returns -- 0.6 percent – in 2008, the study found. Colleges with the smallest endowments, below $50 million, had the largest losses -- 4.3 percent on average.
Even the wealthiest institutions, however, were unable to stave off double-digit investment losses in the first six months of the 2009 fiscal year. Colleges in every category saw average losses of more than 20 percent.
“In effect, they are all in the same boat this year,” said Brett Hammond, chief investment strategist for TIAA-CREF.
While the full 2008 survey from NACUBO included a list of individual institutions' gains and losses, the joint midyear 2009 report from the business officers' group and Commonfund did not. What is striking about the 2009 report is that the 20-plus-point average losses mean that there may well be individual colleges with losses that are significantly greater than that.
As for the 2008 fiscal year, the 20 universities with the largest endowments had varied performance. Of that cohort, five saw market values drop from 2007 to 2008. The largest percentage decrease was at the University of Pennsylvania, which lost 6.1 percent of its endowment’s value, or $401.9 million.
Among the top 20, Northwestern University had the largest percentage gains. The university’s endowment value grew by 11.4 percent or $740.7 million. Harvard University, which retains the nation’s largest endowment, saw an increase of 5.5 percent in market value -- a $1.9 billion gain.
Over all, the NACUBO/TIAA-CREF survey found that the average rate of endowment investment returns was -3 percent in 2008, which closely mirrors Commonfund’s estimate of 2.7 percent investment losses for that period.
Top 20 Endowments
| Rank | Institution | 2008 Endowment | 1 Year % Change |
| 1 | Harvard University | $36,556,284,000 | 5.50% |
| 2 | Yale University | $22,869,700,000 | 1.50% |
| 3 | Stanford University | $17,200,000,000 | 0.20% |
| 4 | Princeton University | $16,349,329,000 | 3.60% |
| 5 | University of Texas System | $16,111,184,000 | 3.20% |
| 6 | Massachusetts Institute of Technology | $10,068,800,000 | 0.90% |
| 7 | University of Michigan | $7,571,904,000 | 6.80% |
| 8 | Northwestern University | $7,243,948,000 | 11.40% |
| 9 | Columbia University | $7,146,806,000 | 0% |
| 10 | Texas A&M System | $6,659,352,000 | 1% |
| 11 | University of Chicago | $6,632,311,000 | 6.90% |
| 12 | University of Pennsylvania | $6,233,281,000 | -6.10% |
| 13 | University of Notre Dame | $6,225,688,000 | 4.20% |
| 14 | University of California | $6,217,340,000 | -3.40% |
| 15 | Duke University | $6,123,743,000 | 3.60% |
| 16 | Emory University | $5,472,528,000 | -1.60% |
| 17 | Cornell University | $5,385,482,000 | 2.60% |
| 18 | Washington University | $5,350,470,000 | -3.90% |
| 19 | Rice University | $4,610,164,000 | -1.30% |
| 20 | University of Virginia | $4,572,613,000 | 4.60% |
Spending Rates May Change
The growth of college endowments in the last several years has drawn the attention of Congress, which has pressed some of the nation’s wealthiest institutions to spend more in an effort to reduce the burden on students. The scrutiny, however, has brought about little change, according to the NACUBO/TIAA-CREF data. On average, the endowment spending rate was 4.6 percent in the 2008 fiscal year, which is the same as it was in 2007.
Institutions with endowments greater than $1 billion had an average spending rate of 4.3 percent, the lowest percentage of any cohort. In contrast, the colleges with the smallest endowments -- $25 million or less -- spent more than any other cohort, with an average rate of 4.8 percent.
Financial officers are sure to struggle with how to approach spending levels over the coming year. If college endowments continue to lose value, spending formulas are likely to dictate lower spending levels in order to preserve endowments. On the other hand, colleges that have lost state revenues or fund raising capacity may be compelled to spend even more than usual.
“The real pressure [now] is to spend more, not less,” said John Walda, president and chief operating officer of NACUBO. “But your long-term concern is maybe we should spend less this year.”
Respondents to the NACUBO and Commonfund follow-up survey were split on how spending rates might change in the 2010 fiscal year. Of those surveyed, 44.8 percent said they planned no changes; 3.7 percent planned to increase rates; 17 percent planned to decrease rates; and 34.5 percent didn’t respond or didn’t know how rates might change.
Average Endowment Spending Rates, 2004-8
| Endowment Assets | 2008 | 2007 | 2006 | 2005 | 2004 |
| > $1 billion | 4.30% | 4.40% | 4.60% | 4.70% | 5.20% |
| > $500 million to $1 billion | 4.40% | 4.40% | 4.50% | 4.80% | 5.20% |
| > $100 million to $500 million | 4.50% | 4.50% | 4.60% | 4.70% | 4.90% |
| > $50 million to $100 million | 4.70% | 4.80% | 4.70% | 4.70% | 4.90% |
| > $25 million to $50 million | 4.60% | 4.80% | 4.80% | 4.70% | 4.80% |
| Up to $25 million | 4.80% | 4.60% | 4.60% | 4.80% | 4.60% |
| All | 4.80% | 4.60% | 4.60% | 4.80% | 4.60% |
Top 10 Liberal Arts College Endowments
| Rank | College | 2008 Endowment | 1-Year % Change |
| 34. | Williams College | $1,808,280,000 | -4.4% |
| 35. | Pomona College | $1,794,453,000 | +1.9% |
| 40. | Amherst College | $1,705,917,000 | +2.6% |
| 44. | Wellesley College | $1,611,319,000 | -2.7% |
| 47. | Grinnell College | $1,472,448,000 | -14.3% |
| 50 | Swarthmore College | $1,412,609,000 | -2.0% |
| 52. | Smith College | $1,365,792,000 | +.4% |
| 76. | Berea College | $1,023,255,000 | -7.2% |
| 83. | Middlebury College | $885,389,000 | -5.4% |
| 90. | Vassar College | $848,717,000 | -2.3% |
Top 5 Canadian University Endowments
| Rank | College | 2008 Endowment | 1-Year % Change |
| 42. | University of Toronto | $1,702,481,000 | -3.5% |
| 68. | University of British Columbia | $1,068,981,000 | +5.5% |
| 87. | McGill University | $868,580,000 | +.6% |
| 101. | University of Alberta | $710,902,000 | -1.6% |
| 121. | Queens University | $624,547,000 | +1.6% |
Top 5 Historically Black College Endowments
| Rank | College | 2008 Endowment | 1-Year % Change |
| 142. | Howard University | $497,680,000 | -5% |
| 180. | Spelman College | $351,706,000 | +3.4% |
| 229. | Hampton University | $235,872,000 | -8.2% |
| 420. | Meharry Medical College | $77,955,000 | -.6% |
| 490. | Morehouse School of Medicine | $60,352,000 | +7.0% |
Top 5 Community College Endowments
| Rank | College | 2008 Endowment | 1-Year % Change |
| 460. | Valencia Community College | $66,873,000 | -1.7% |
| 599. | Florida Community College at Jacksonville | $65,266,000 | +7.1% |
| 606. | Pasco-Hernando Community College | $33,765,000 | -1.2% |
| 650. | Sinclair Community College | $26,093,000 | -5.8% |
| 664. | Harrisburg Area Community College | $24,449,000 | -20% |
