Dive Brief:
- According to the Nacubo-Commonfund Study of Endowments, college and university endowments saw an average of 12.2% returns for the 2017 fiscal year, thanks to the overall success of the stock market. This is a significant increase from the previous year when endowments as a whole dropped 1.9%.
- However, despite the 2017 gains, the ten-year average returns are still declining, falling to 4.6% in Fiscal 2017 — well below the projected 7%-8% many leaders were hoping to see.
- The survey also found that 65% of institutions are increasing spending from endowments to support financial aid, research and operations, a trend which could increase as enrollments continue to decline and fewer tuition dollars are brought in.
Dive Insight:
Scrutiny continues over how institutions spend (or don't spend) their endowments, but very little conversation at the national level centers around what endowments were intended to fund to begin with. From proposals to more heavily taxed endowments at richer institutions to criticisms that more can be done to get low-income students to and through college, much of the public discourse misses that endowments are intended to serve as an investment pool to grow the capacity of the institution to continue to serve students and the public good.
Still, as fewer tuition dollars come in and perhaps more from the endowment pool is allocated to cover operating expenses to compensate for deep tuition discounts as well as fewer bodies on campus, finding ways to diversify revenue continues to be the top challenge for institution leaders. And while private activity bonds were protected in the version of the tax bill which passed through Congress in December, some are still casting a weary eye towards the possibilities of real estate development and construction as a major source of revenue in their ten-year outlooks.
Institutions like those in the University of Texas system, which have benefited from land holdings rich in oil, and those in the University of Illinois, which have been able to profit on farmland investments, are making strategic investments which align well to their geographic strengths. But for smaller institutions, particularly privates, there is a need to get creative about finding ways to bring in more money, and securing partnerships with industry and local foundations has been paramount in these efforts.