The Wall Street Journal-20080117-College Endowments Post 16-9- Return
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College Endowments Post 16.9% Return
College endowments, benefiting from soaring U.S. and international stock markets, posted an average investment return of 16.9% in their most recent fiscal year, according to a study to be released today.
In absolute terms, the results were the strongest since at least 2000, according to the study by nonprofit Commonfund, a Wilton, Conn., firm that manages money for colleges.
But the increase lagged behind the broader U.S. stock market. Including reinvested dividends, the Standard & Poor's 500-stock index returned 20.6% during the same period, the year ended June 30, 2007. Bonds rose about 6%.
In recent years, many colleges have been pouring money into so- called alternative investments, such as hedge funds and venture- capital funds, which are typically private partnerships generally available only to wealthy individuals and institutions. In the process, college investment officers have de-emphasized their traditional mix of stocks, bond and cash. Colleges have an average of 42% of their assets in alternative investments, about twice the percentage eight years ago, Commonfund said.
Elite universities, led by Yale and Harvard, have been early proponents of these alternative strategies, which have posted dazzling gains in recent years. Many analysts have wondered whether smaller colleges have come late to the party, as the gains from some alternative investments slacked off.
Last year's results may add to that concern. Although colleges' alternative investments returned a respectable 16.8%, they underperformed plain-vanilla stocks, the study found. John S. Griswold, executive director of Commonfund Institute, the organization's research arm, said colleges have slowed their new commitments to alternative investments in part because of the recent disappointing performance. But Mr. Griswold said schools' diverse investments may help them "weather the storm" of the recent drop in the overall stock-market more effectively than they would have a decade ago.
Colleges also benefited from putting a fifth of their assets into international stocks, which returned 28.3%, according to the study. Continuing a longstanding trend, larger institutions with greater access to top-flight investment firms tended to outperform smaller peers. Endowments with more than $1 billion in assets posted a 21% average return, compared with 13.6% for those with less than $10 million on hand.
Commonfund examined the returns of 767 U.S. institutions, without specifying college names. As previously reported, Harvard University, with its nearly $35 billion endowment, the nation's biggest, reported a 23% return during that period, while No. 2 Yale University, with its $22.5 billion endowment, notched 28%.
The study also found that, despite strong investment returns, colleges spent only 4.4% of their endowments in their most recent fiscal year, slightly less than the year before.
