College endowments had a tough year in 2016, losing money even as the overall stock market racked up double-digit gains.
The endowments of 805 U.S. colleges and universities returned an average of -1.9 percent net of fees in the 2016 fiscal year (July 1, 2015 to June 30, 2016), according to a recent report from the National Association of College and University Business Officers and the Common Fund for Nonprofit Organizations. That’s down from a return of 2.4 percent in 2015 and 15.5 percent in the 2014 fiscal year, and it represents a loss of billions of dollars -- $2.7 billion at the 10 richest colleges alone.
The losses pulled the 10-year average annual return for college endowments down from 6.3 percent to 5 percent. Most endowments report needing a return of 7.4 percent in order to maintain their purchasing power after spending, inflation and investment fees.
In spite of negative returns, three-quarters of endowments said that they spent more in the 2016 fiscal year than in 2015, with an average increase of 8.1 percent. Schools typically get about 10 percent of their operating funds from their endowments. “These substantial increases in spending from endowments demonstrate the deep commitment colleges and universities have to student access and success,” NACUBO President and CEO John Walda said in a statement. “Nonetheless, this year’s results are cause for concern. Continued, below average investment returns will undoubtedly make it much more difficult for college and universities to support their missions in the future.”
Endowments saw their highest returns on bonds, which returned 3.6 percent for the year, up from 0.2 percent in 2015. They lost in the stock market, however, returning -0.2 percent for the year, compared to 6.3 percent in 2015.