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College endowments plunge to Great Recession levels, but their spending goes up

You’d think that colleges wouldn’t open their wallets as freely if their investments were doing poorly, yet that’s exactly what they did in the most recent fiscal year.

Average endowment returns went negative from July 1, 2015 through June 30, 2016, falling by more than three percentage points from the previous fiscal year, which showed meager growth, according to the latest National Association of College and University Business Officers-Commonfund survey:

This is the second consecutive year that endowments have posted below-average returns; in FY15, endowments reported a gain of just 2.4 percent. The -1.9 percent average return is the lowest endowment performance since the 2008-2009 financial crisis.

Meanwhile, the survey of 805 U.S. institutions with $515.1 billion in endowment assets found that three in four “raised their endowment spending withdrawals to support campus operations, with a median increase of 8.1 percent, well above the 0.7 percent increase in inflation.”

There’s a yawning gap between the best and worst endowed schools, with nearly half under $100 million yet an average endowment of $639 million, according to the survey.

In a press release, the association said the 10-year average annual return has fallen to 5.0 percent from last year’s 6.3 percent:

As in fiscal 2015, this year’s long-term return figure is well below the median 7.4 percent that most institutions report they need to earn in order to maintain their endowments’ purchasing power after spending, inflation, and investment management costs.

Commonfund Institute President William Jarvis told reporters the big endowments ($500 million and up) took bigger hits than the small ones ($25 million and under), “which had a heavy allocation to fixed income and bonds, relatively safer investments.”

Read the NACUBO post.

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