Industry Insights

What to Know from the 2014 NACUBO – Commonfund Study of Endowments

March 2015

Results from the most recent NACUBO – Commonfund Study of Endowments (NCSE) are in, and they reveal colleges and universities saw increased returns again in fiscal year 2014, ended June 30, 2014. Responses were gathered from 832 U.S. colleges and universities in this year’s study, representing $516 billion in endowment assets. These institutions’ endowments returned an average of 15.5 percent (net of fees) in 2014—an increase of 3.8 percent over 2013’s return. This demonstrates sustained growth following 2013’s considerable increase over 2012’s 0.3 percent loss. 

The National Association of College and University Business Officers (NACUBO) and Commonfund Institute, a not-for-profit investment organization, jointly collect data each year from these institutions, including financial figures and investment policies. NCSE groups the schools into six cohorts based on the size of their endowments in order to further analyze the data and transform it into meaningful information. The “over $1 billion” cohort averaged a return rate of 16.5 percent in 2014, leading all categories. However, the remaining groups experienced comparable return rates, ranging from 15.2 percent to 15.8 percent.

Source:  2014 NACUBO – Commonfund Study of Endowments

While return rates were similar among the six cohorts, the study reported the groups allocate their portfolios very differently across asset classes. There was a positive correlation between endowment size and investment in alternative strategies, while a negative correlation existed between endowment size and more traditional asset classes. For example, while institutions in the “over $1 billion” in assets cohort allocated 57 percent of their portfolios to alternative investments, the endowments with “under $25 million” in assets allocated only 10 percent to these same strategies. While the largest endowments allocated 13 percent to domestic equities and 8 percent to fixed income, the smallest endowments allocated 43 percent and 26 percent of their portfolios to these asset classes, respectively.

The various asset classes each reported higher return rates in 2014 than the previous year:

  • Domestic equities – 22.8 percent
  • International equities – 19.2 percent
  • Alternative strategies – 12.7 percent
  • Fixed income – 5.1 percent
  • Short-term securities/cash/other – 1.9 percent.

The study found the effective spending rate for 2014 remained unchanged from 2013 at an average 4.4 percent. Due to the increased return rates noted, endowment spending increased in 2014, allowing institutions to increase the portion of their operating budgets funded by their endowments from 8.8 percent in 2013 to 9.2 percent in 2014. 

Another notable change was an increase in respondents that use risk assessment strategies in their portfolios, from 50 percent in 2013 to 57 percent in 2014. Various risk analysis tactics were used by participants, including:

  • Volatility calculations – 76 percent in 2014, up from 72 percent
  • Measures such as alpha and beta – 61 percent, up from 55 percent
  • Stress testing or scenario analysis – 46 percent, up from 41 percent

While this is a brief overview of the 2014 study’s results and significant changes from 2013, there’s much to be gained from reviewing the full results. Staff members at participating institutions and study sponsors received complimentary access to the study. Other interested parties can view the press release and tables or purchase a full copy of the study at the NACUBO website.

For more about the study, contact your BKD advisor.

 

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