To the long litany of financial challenges facing colleges, an endowment study released today from NACUBO demonstrates the carnage in university endowments, which fell 18.7% for year ending June 30, 2009.
This survey had 842 participants representing $306 billion in investments meaning this 18.7% decline represented a reduction of $70 billion in assets. Assuming a 4.4% annual endowment payout (the average for the survey respondents) translates into universities having $3.1 billion less to spend from their endowment over this period.
Only two asset classes had positive returns over this period: fixed income (3.0%) and cash (0.8%). The report sponsors hope that the improved performance from the firs two quarters of 2009-10 will continue through the second half:
“These results illustrate the extreme difficulties colleges and universities faced at the height of the global economic crisis,” said Walda. “Our hope is that the strong first half of FY2010 augurs well for the full fiscal year and that a year hence the story will be much more positive.” Griswold pointed out, “Many educational institutions have taken steps to adapt to the realities imposed by endowments that have been buffeted by losses averaging nearly 20 percent. Future NCSE reports may well reflect fairly significant changes in investment management, spending, debt practices and governance policies.”
Here is how the Commonfund executive director described the returns:
"You have to go back to the Great Depression to find a period when
endowments suffered this much and it's going to take a long time to
make up for those losses," said John Griswold, executive director of
the Commonfund Institute. "
BusinessWeek presented the other side of how schools responded to these sharp decreases in their endowments by increasing their debt:
"U.S. universities boosted their long-term debt by 54 percent in the
year ended June 30, as the economic crisis forced them to borrow to
offset record losses in their endowments."
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