Endowments Poised To Become Force Again

Two new studies reveal that university endowments, battered by the recent economic crisis, have begun to grow again, adding fresh resources to the pool of funds they can commit to private equity and other investments.

Endowments grew on average by 11.9 percent in fiscal year 2010, which ended June 30th, according to a study released by the National Association of College and University Business Officers (NACUBO) and Commonfund, a big investor for non-profit institutions. That gain is a stark reversal from FY2009, when the average endowment lost 18.7 percent.

Adding to the improving picture, universities had a slightly easier time raising new funds in 2010. They received about $7 billion in gifts destined specifically for their endowments, representing about a quarter of the $28 billion in overall donations that universities took in last year, according to Ann Kaplan, author of separate study from the Council for Aid to Education, or CAE. Giving was up 0.5 percent during 2010, a stark change from the previous year when donations slipped by 11.9 percent.

Both trends promise to help private equity firms on the fund-raising trail. According to the NACUBO study, allocations to private equity rose to 12.5 percent in FY2010 from 10.7 percent the previous year. Performance of private equity investments by endowments was also strong, returning 14.1 percent in FY2010.

Endowments bigger than $1 billion had the highest portion of capital (15 percent) targeted to private equity, according to the NACUBO study. Among the biggest private equity players is Harvard University, whose $27.6 billion endowment fund will target 13 percent of its assets to private equity in 2011, according to a report by the Harvard Management Company. Yale University, with a $16.7 billion endowment, now targets 33 percent of its holdings to private equity, according to the Yale Daily News.

In FY2010, Harvard’s endowment grew 5.7 percent and Yale was up 2 percent, according to NACUBO, both underperforming the S&P 500’s return of 10.4 percent during the period. Overall, both endowments are still substantially smaller than they were prior to the recession.

Not surprisingly, universities with the largest endowments also topped the donation list in 2010. Stanford University received the most in 2010 with $599 million in donations. Harvard University came in second, garnering $597 million in gifts. They were followed by Johns Hopkins University, the University of Southern California and Columbia University, each of which raised more than $400 million in 2010, according to the CAE study.

It still wasn’t a stellar year for the top five donation recipients in the CAE study: All but U.S.C. received smaller amounts in 2010 than in 2009. Eight schools among the top-20 were public, led by number 10 Indiana University, which raised $342 million. The rankings only detail universities that responded to CAE’s survey.

The top performing large endowment was Syracuse University, according to NACUBO. The university saw the value of its endowment increase 29 percent to $849 million in FY2010, although the university merely gained back much of what it lost in FY2009, when it ranked among the year’s worst performers, losing 33 percent of its value.