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Photo illustration of piles of money.

Fiscal year 2023 brought better returns for endowments than the prior year.

Photo illustration by Justin Morrison/Inside Higher Ed | Getty Images

Endowment returns for fiscal year 2023 are up 7.7 percent according to the latest study by the National Association of College and University Business Officers and Commonfund. That marks a reversal of fortunes after returns fell by 8 percent in fiscal year 2022.

The endowment report, released today, found that despite a difficult start to fiscal 2023, institutions rebounded sharply, which an accompanying press release attributed to “strong returns in public equity markets globally” during the last nine months of the year. Though a marked improvement over FY 2022, the latest returns fell far short of those achieved in FY 2021, when the average endowment increased by 35 percent.

In all, 688 institutions with a combined endowment value of $839 billion took part in the study.

Strong Performers

The institutions with the biggest endowments maintained their status this year, with no changes among the top five. The largest endowments represented in the study belong to Harvard University ($49.5 billion), the University of Texas system ($44.9 billion), Yale University ($40.7 billion), Stanford University ($36.5 billion) and Princeton University ($34 billion).

The University of California system moved into the top 10—passing the University of Notre Dame—with a strong return of 14.7 percent taking the endowment to $17.7 billion, but most of the megawealthy institutions saw sluggish returns for FY 2023. Among the top 25, only the UC system and Duke University saw endowment returns higher than 7.7 percent; Duke’s 9.3 percent return bumped its endowment to $13.2 billion. Johns Hopkins University grew a whopping 27.8 percent, pushing its endowment to $10.5 billion. (This paragraph has been updated with the correct Hopkins figures.)

Among the 688 participating institutions, 142 had an endowment valued at or over $1 billion. But the vast majority of institutions are not so wealthy, with the median endowment valued at $209 million. Among the study participants, nearly one-third had endowments under $100 million.

“While a handful of institutions receive wide public attention for the size of their endowments, the vast majority of colleges and universities are working with a much smaller set of resources,” NACUBO president and CEO Kara Freeman noted on a press call Wednesday morning.

And in FY 2023, smaller endowments fared better than large ones.

“Smaller endowments tend to have a much higher allocation to public equities, whereas the larger endowments tend to have the smallest allocation to public equities,” Commonfund CEO and chief investment officer Mark Anson said. “What happened in 2023? The best-performing asset class was public equities. The higher your allocation, the higher your strategic allocation to public equities, domestic international and emerging, the better you performed.”

Institutions that invested comparatively more in areas such as private capital, private equity and venture capital and private real estate had lower returns, he said.

But large endowments are still faring well on long-term investments. For institutions with endowments valued at more than $5 billion, returns reached 12.2 percent at the three-year mark, 9.4 percent at five years, and 9.1 percent at the 10-year mark. On the other end of the spectrum, colleges with endowments of less than $50 million saw a 7.3 percent return at the three-year mark, 6 percent at five years, and 6.5 percent after 10 years, according to NACUBO data.

Endowment Spending

The NACUBO-Commonfund study also found that institutions increased endowment spending across the board, with the average effective spending rate hitting 4.7 percent in FY 2023, up from 4 percent the year before. On average, private institutions spent 5 percent of their endowment funds and public institutions 4.1 percent.

Study respondents reported spending a total of $28.4 billion from their endowments in FY 2023, up from $25.8 billion the prior year. Institutions leveraged their endowments for a variety of reasons, particularly to support student financial aid, which made up 47.7 percent of reported endowment spending.

Endowment spending also flowed to academic programs and research, endowed faculty positions, operation and maintenance of campus facilities, and more.

The median percentage of total institutional budgets funded by endowments was 10.9 percent.

Donations and DEI

On the philanthropy side, the study tallied gifts to endowments at $13.3 billion in FY 2023. That figure is down from the $14.9 billion reported in 2022, when 678 institutions participated in the study. (A NACUBO spokesperson noted that the number of colleges and universities participating in the voluntary study can change from year to year.)

Nearly two-thirds of colleges reported receiving donations to fund diversity, equity and inclusion initiatives; such programs have come under fire in numerous states by conservative lawmakers who allege that they are wasteful and create less welcoming environments.

NACUBO staff noted the survey did not ask for detailed information on such programs, and it is too early to tell how state laws targeting DEI initiatives are playing out in the financial arena.

A 50-Year Retrospective

The latest report marks 50 years since NACUBO began tracking college endowments. In that time, the study has grown from an initial cohort of 136 colleges and universities to the nearly 700 this year.

A supplemental white paper published this year noted a variety of changes during that time frame.

“Among the major developments over the past 50 years of endowment management was the progression from external investment advisors to the use of consultants to outsourcing and then to the OCIO model, or outsourced chief investment officer,” officials wrote in a retrospective.

The concept of responsible investing also took hold, beginning in fiscal year 2000. Though some investors had walked away from tobacco, alcohol, firearms and gambling decades before—and many began to divest from South Africa due to apartheid in the 1970s—it took years before an emphasis on social responsibility caught on, NACUBO noted.

Now institutions regularly consider environmental, social and governance criteria in investing decisions, even as conservative lawmakers have raised concerns about ESG. Some, including Florida governor Ron DeSantis, have cast ESG as part of a so-called woke political ideology, while ESG advocates argue that it’s simply a good investment practice. By contrast, students activists have pushed universities on environmental concerns, urging institutions to divest from fossil fuels (with some success), as well as other causes.

Beyond the trends of yesteryear, NACUBO and Commonfund are looking to the future.

“With the advent of digital currencies, artificial intelligence and the increasing sophistication of financial markets, new trends continue to emerge and open new horizons for [the] next 50 years,” officials wrote. “Whatever may come, NACUBO and Commonfund Institute look forward to the next half century of progress as we partner to analyze, monitor and discern the ever-growing and changing endowment management landscape.”

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