| NEW YORK
NEW YORK Feb 1 U.S. college and university
endowments posted an average loss of 0.3 percent for fiscal
2012, a sharp reversal from a gain of 19.2 percent a year
earlier, pressured by volatile international equity markets,
according to a study released on Friday.
Institutions with the biggest endowments reported the
highest returns, according to a study by Commonfund Institute
and the National Association of College and University Business
For the fiscal year ended June 30, 2012, endowments of more
than $1 billion had the best returns, with a gain of 0.8
percent. The lowest rate of return was for endowments with
assets between $51 million and $100 million, at a loss of 1.0
percent, the study showed.
"It was a very bad year for international equities; you had
China slowing down, euro zone problems, so it had a very
negative impact on equities outside the United States, that was
a big drag on those portfolios exposed," Verne Sedlacek,
president and chief executive of Commonfund, told a press
The study was based on data from 831 U.S. institutions with
endowment market assets totaling $406.1 billion.
Over the last 10 years, endowments generated average
annualized returns of 6.2 percent, out-performing the 5.5
percent gain posted by Standard & Poor Index for the same
period, Sedlacek said. Those returns, however, still trail
institutions' average long-term target rate of 7.4 percent.
"The 6.2 percent sounds pretty good, but actually over the
last 10 years, with the financial crisis, with the recession,
universities have lost ground when you adjust for inflation,"
Longer-dated fixed-income investments generated the highest
return with an average of 6.8 percent, while international
equities produced a loss of 11.8 percent.
While endowments with assets over $1 billion reported the
smallest fixed income allocation, at 9 percent, they realized
the highest return from this asset class, an average of 9.1
percent, the report showed. Endowments with assets under $25
million benefited from the largest fixed income allocation, at
29 percent, despite reporting the lowest return, an average of
International equity markets were the biggest drag on all
the institutions, large and small. All groups, from those with
assets under $25 million to those with over $1 billion reported
losses ranging from 13.2 percent to minus 10.5 percent in their
international equity allocations.
In alternative strategies, which returned just 0.5 percent,
private equity showed the largest return, at 5.1 percent,
compared with 18.7 percent in the previous fiscal year.
Marketable alternatives, also known as hedge funds, showed a
loss of 1.2 percent compared with a 9.4 percent return the
previous fiscal year. Commodities also disappointed.
"You would think that in a year with a relatively flat stock
market that hedge funds should do pretty well relative to the
U.S. market, and that was not the case in fiscal 2012," Sedlacek
said, adding that hedge funds are active stock pickers and they
did poorly relative to a passive approach.
The effective spending rate, or the percentage of an
endowment's value at the beginning of the year allocated for
operating expenses, was 4.2 percent for the 2012 fiscal year,
compared with 4.6 percent the previous period, while decreases
in gifts and donations to endowments have been a cause for
concern in the aftermath of the 2008-09 financial crisis.