Endowment Returns Down for Higher Education Over Last Decade

One year after historically black colleges and universities received a bump in returns from endowment funds, the sector may be for a rough road ahead in 2019 with endowment growth decline in 2018 and uncertainty in the stock market heading into the new year.

HBCU Money reported last February that many HBCU investment funds saw double-digit growth in 2017, with many of the elite private institutions earning between five and 15% in the markets.

But a report from researchers at Georgetown University and New York University shows that most nonprofit organization funds yielded returns of just 3.75 percent between 2009 and 2016, a period marked by high buying rates and record gains for many Ivy League predominantly white institutions and against average market index returns of more than 12 percent.

From Chief Financial Officer:

The findings “support the conclusion that the investment wisdom of top universities is largely a myth, as one could expect to earn these types of returns simply by chance,” the authors of the report wrote. “Frequent mentions in the media of the out-performance of top schools seems likely due to the outsized success of just one university, Yale.” In 2018, Yale’s endowment earned a 12.3% investment return (net of all fees) for the year ending June 30, raising its total value to an all-time high of $29.4 billion from $27.2 billion at the same time last year. Higher education endowments accounted for only 6% of the observations in the study, despite holding more than half of the assets in the sample.

For HBCUs, the collective underperformance and fluctuations in the marketplace could have a significant impact on available resources for student scholarship support, debt servicing and money for faculty and staff salary and resource support.

One of the glaring issues for small colleges’ challenges with strong investing strategy? A lack of proximity to competitive financial advising. From Institutional Investor:

“Smaller non-profits near financial centers are probably much more likely to have better-informed board members, and they may establish superior investment policies for these organizations’ endowments,” the authors concluded. “Larger funds may already have qualified board members but may be susceptible to professional money mangers’ sales pitches that lead to over-investment in exotic products with high fee structures.”

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