November 7, 2011 / 9:41 PM / in 8 years

U.S. education endowment returns rise, still lag pre-crisis

NEW YORK, Nov 7 (Reuters) - U.S. college and university endowments returned an average 19.8 percent for fiscal 2011, up from 11.9 percent a year earlier, but have yet to recover from the 2008-2009 credit crisis, a study showed on Monday.

Among the endowments, the highest return earned for the fiscal year was 31.8 percent and the lowest 3.7 percent, according to the study of the investment funds of 284 instiutions sponsored by Commonfund Institute and the National Association of College and University Business Officers (NACUBO).

“The average endowment is still at only 86 percent of its value in fiscal year 2007, using return data from past (Study of Endowments) reports and a 5 percent spending rate,” NACUBO President and Chief Executive Officer John Walda and Commonfund Institute Executive Director John Griswold said in a statement.

“And longer-term returns for five- and ten-year periods are only 5.0 percent and 5.5 percent, respectively - not significantly higher than the spending rate for many institutions. It will take several more years of positive returns for endowments to recover fully from the crisis.”

Those endowments with assets between $25 million and $50 million returned the lowest average of 18.9 percent, while the highest average return of 20.3 percent was reported by endowments with assets between $51 million and $100 million.

Colleges and universities use endowments to cover operating costs. They study showed they employed different investment strategies to maximize profits on capital invested in the funds.

The biggest difference emerged in allocations to alternative strategies, as institutions with assets over $1 billion reported an average allocation of 58 percent, while institutions with assets under $25 million reported an average alternatives allocation of 9 percent.

Institutions with assets over $1 billion reported allocations to domestic equities that averaged just 12 percent, while endowments with assets below $25 million reported a 41 percent allocation.

Similarly, the largest endowments reported average fixed income allocations of 10 percent or less, while the smaller size institutions had average fixed income allocations in excess of 20 percent.

Allocations to international equities and short-term securities, cash and other were more consistent across the size cohorts, the statement said.

Reporting by Manuela Badawy; Editing by Andrew Hay

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