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Colleges see worst endowment returns since recession

Institutions could face tough spending decisions in the long run

Colleges will need to seriously consider making cuts if endowment returns continue their near-unprecedented declines, members of the Commonfund Institute and National Association of College and University Business Officers said Monday.

That warning followed the release of the organizations’ 2016 endowment study, which showed the lowest average annual net returns since the 2008-2009 recession. The report, released annually for more than 40 years, includes information from more than 800 colleges and universities for the fiscal year that ended June 30.

This year’s synopsis: Returns are continuing in a years-long mostly downward trajectory, even as institutions are dipping more into their endowments to cover scholarships and other costs.

Endowment returns this past year were negative for the fourth time in the past 10 years, swinging from a gain of 2.4 percent in the 2015 fiscal year to a loss of 1.9 percent in fiscal year 2016. Smaller colleges with endowments under $100 million fared slightly better, mostly because they tended to invest in traditional assets like bonds as opposed to the alternative investments favored by larger institutions, which did not perform as well as this year.

Ten-year returns are also down overall, from 6.3 percent in fiscal year 2015 to 5 percent this past year. That’s well below the 7.4 percent benchmark that industry professionals say institutions need to stay afloat in the long-run.

Midstate colleges

Dickinson College

  • 2016 market value: $381 million
  • Change from 2015: Down 8.2 percent

Franklin & Marshall College

  • 2016 market value: $305.6 million
  • Change from 2015: Down 8.7 percent

Gettysburg College

  • 2016 market value: $276.8 million
  • Change from 2015: Down 2.7 percent

Messiah College

  • 2016 market value: $129.75 million
  • Change from 2015: Down 4 percent

Elizabethtown College

  • 2016 market value: $69.7 million
  • Change from 2015: Down 0.2 percent

Lebanon Valley College

  • 2016 market value: $60.3 million
  • Change from 2015: Down 2.4 percent

Figures are as of June 30, 2016 as reported in the NACUBO-Commonfund Study of Endowments.

The association has warned colleges and universities since the recession that they will eventually need to reckon with the consequences of low returns, especially as government funding and enrollment rates decrease. That concern, however, is tempered somewhat by the fact that institutions are ramping up fundraising efforts.

But if rates continue down this path, institutions, especially smaller ones, will need to make cuts or solicit more gifts in the long run, said John Walda, president and CEO of the business officers association, during a call with reporters Monday.

Many institutions have maintained or increased their scholarships and educational programs in the face of low returns, with 74 percent of the colleges and universities surveyed saying they increased the dollar amount of endowment spending this year. Much of this money, Walda speculated, likely went toward student scholarships.

If colleges want to continue down this path, they need to continue fundraising for their endowments. Unrestricted donations would be the most effective because many campuses have buildings that are at least 50 years old and in need of new wiring, roofs and other upgrades, said William Jarvis, executive director of the Commonfund Institute, during Monday’s teleconference.

Raising money for these causes is often trickier than finding funds for scholarships, endowed professorships and new programs, Jarvis said.

Institutions have also adjusted their average return expectations in recent years, which had become “unrealistically high,” Jarvis said in a news release before Monday’s call.

“The duty of boards and investment committees to balance current and longer-term demands, which is fundamental to the goal of maintaining equity among present and future generations of students, will be even more important in the next few years,” Jarvis said.

More information is available at www.nacubo.org.

Jennifer Wentz
Jennifer Wentz covers Lancaster County, York County, financial services, taxation and legal services. Have a tip or question for her? Email her at jwentz@cpbj.com.

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