College endowment spending rose but returns lagged in fiscal 2020: report

Dive Brief:

  • Colleges and universities spent 4% more from their endowments in the 2020 fiscal year than the one before, according to the latest annual data from the National Association of College and University Business Officers and TIAA.
  • Of the 705 institutions surveyed, 70% increased their spending for the period tracked, averaging around $3.3 million more. Financial aid continued to account for the largest share of spending.
  • However, if returns continue to shrink as they have in recent years, institutions will need to reconsider key investment strategies, the report notes.

Dive Insight:

Collectively, the colleges surveyed held nearly $638 billion in their endowments in fiscal 2020. The median endowment value was $164.6 million, though around 45% of schools reported less than $140 million. That’s compared to a median value of $144 million in fiscal 2019.

While the survey captures the impact of the first few months of the pandemic, it also highlights trends that predate the crisis.

For instance, the average one-year return dipped to 1.8% in fiscal 2020 from 5.3% in fiscal 2019. Colleges have struggled in recent years to hit the standard 7.5% target rate. While the steep drop shows the effect of the downturn in early 2020, the market’s strong rebound in the second half of the calendar year means the reported return “likely understates” funds’ performance, Doug Chittenden, executive vice president and head of institutional relationships at TIAA, said in a press release.

2020 NACUBO-TIAA Study of Endowments

 

COVID-19’s impact shows up elsewhere in the data. Nearly half of schools tracked increased spending from their endowment to support their operating budget. And more than 40% reported cash flow declines. Additionally, new gifts fell by about 16% from fiscal 2019. Recent data from the Council for Advancement and Support of Education found that total giving to colleges stalled in 2020.

The pandemic, along with the racial reckoning that was reinvigorated this summer, also highlighted the potential for the consideration of environmental, social and governance factors that can help predict a company’s future performance. 

While only around 20% of respondents to NACUBO’s survey believe the use of ESG factors can yield returns exceeding market benchmarks, several advocates and colleges using such strategies told Higher Ed Dive earlier this year that they can pay off.

2020 NACUBO-TIAA Study of Endowments

 

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