ERIC ED402887: NACUBO Endowment Study, 1995.

476 Pages·5.3 MB·English

by  ERIC

DOCUMENT RESUME
HE 029 830
ED 402 887
NACUBO Endowment Study, 1995.
TITLE
Cambridge Associates, Inc., Boston, MA.
INSTITUTION
National Association of Coll. and Univ. Business
SPONS AGENCY
Officers, Washington, D.C.
ISSN-1067-8301
REPORT NO
PUB DATE
Jan 96
476p.; For the 1992 edition, see ED 354 811.
NOTE
National Association of College and University
AVAILABLE FROM
Business Officers, One Dupont Circle, Suite 500,
Washington, DC 20036 ($60 members; $85
non-members).
Reports
Statistical Data (110)
PUB TYPE
Research /Technical (143)
MF01/PC20 Plus Postage.
EDRS PRICE
Colleges; Donors; Educational Finance; *Endowment
DESCRIPTORS
Funds; Financial Policy; Financial Services; Fiscal
Capacity; Higher Education; *Income; Inflation
(Economics); *Investment; *Money Management; Private
Colleges; Risk Management; *Trusts (Financial);
Universities
ABSTRACT
This report presents the results of the 1995 study of
the performance and management of college and university endowments,
based on 394 institutions providing data. A summary abstract provides
an overview of performance and investment data; and Part 1 of the
study provides a brief commentary covering endowment characteristics,
historical performance data, and terminology used. The exhibits in
Part 2 are divided into two sections. In the first section, 12
exhibits cover general endowment characteristics, including: first,
asset values, institution type, ranked by type of institution and by
full-time equivalent student, and type of endowment; second, growth
(versus market indexes), withdrawals, payout rates, spending rates
and rules, and gift flow rates; and third, asset allocation
structure. The larger second section of Part 2 provides data on the
(2) performance
(1) dollars of assets;
investment pool including:
measures by institution, by institution rank, returns (by various
(3) asset allocation
measures: nominal, real, average, cumulative);
(4) investment management and custodial expenses;
structure;
(5)
investment managers, by institution, and custodians. Appendix A is a
glossary of terms; Appendix B defines various standard market
indices. Also appended to the report is a list of contributors,
sponsors, and associates. A separate formal acknowledgement booklet
listing contributors to the study by level of gift accompanies the
report.
(CH)
***********************************************************************
Reproductions supplied by EDRS are the best that can be made
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U.S. DEPARTMENT OF EDUCATION
()Mee or Educations' Research and Improvement
EDUCATIONAL RESOURCES INFORMATION
CENTER (ERIC)
t.
his document has been reproduced as
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Minor changes have been made to improve
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Points of view or opinions stated in this docu-
ment do not necessarily represent official
OERI position or policy
THIS
"PERMISSION TO REPRODUCE
BY
MATERIAL HAS BEEN GRANTED
NACUBO
Prepared by
Cambridge Associates, Inc.
TO THE EDUCATIONAL RESOURCES
LEST COPY AVAI1LABLE
INFORMATION CENTER (ERIC1.'
1995
NACUBO
ENDOWMENT STUDY
Prepared by
Cambridge Associates, Inc.
National Association of College and University Business Officers
Copyright ©1996 by the National Association
of College and University Business Officers
One Dupont Circle
Washington, DC 20036
All rights reserved
Printed in the United States of America
ISSN 1067-8301
4
CONTENTS
Foreword
vii
Acknowledgments
ix
Abstract
xi
Part I
Commentary
Discussion of Results
3
Notes on Data
17
Part II
Exhibits
Endowment Characteristics
General Characteristics
1 A Endowment Assets
23
1 B Endowment Assets by Institution Type
24
Institutions Ranked by 1995 Market Value of Endowment Assets
2
25
Endowment Assets per Full-Time Equivalent (FTE) Student
3
37
4
Public Institutions Ranked by Endowment Assets per FTE Student
38
Private Institutions Ranked by Endowment Assets per FTE Student
5
42
True Endowment, Term Endowment, Quasi-Endowment, and Funds
6
Held in Trust
49
Growth
Endowment Growth and Market Indexes
7
51
8 A Withdrawals from Endowment
52
8 B Endowment Payout Rates
53
9 A Institutions by Endowment Spending Rule Category
54
9 B Endowment Spending Rules
60
Endowment Gift Flow Rates
10
92
Asset Allocation
Endowment Asset Allocation
11
93
Endowment Asset Allocation by Institution
12
94
Investment Pool Characteristics
General Characteristics
13 A Investment Pool Assets
107
iv
CONTENTS
Part II
Exhibits (continued)
Investment Pool Characteristics (continued)
13 B
Investment Pool Assets (June 30)
108
Institutions Grouped by Size of Investment Pool
14
109
Performance
Investment Pool Nominal Returns
15
110
Range of Nominal Returns
16
111
17 A Investment Pool Nominal Returns by Institution (June 30)
112
17 B
Investment Pool Nominal Returns by Institution (May 31)
126
18 A Investment Pool Average Annual Compound
Nominal Returns by Institution (June 30)
128
18 B
Investment Pool Average Annual Compound
Nominal Returns by Institution (May 31)
142
19 A Investment Pool Cumulative Nominal Returns
by Institution (June 30)
144
19 B
Investment Pool Cumulative Nominal Returns
by Institution (May 31)
158
Institutions Ranked by Investment Pool
20
Average Annual Compound Return
161
Investment Pool Real Returns
21
170
Range of Real Returns
22
171
23 A Investment Pool Real Returns by Institution (June 30)
172
23 B
Investment Pool Real Returns by Institution (May 31)
186
24 A Investment Pool Average Annual Compound
Real Returns by Institution (June 30)
188
24 B
Investment Pool Average Annual Compound
Real Returns by Institution (May 31)
202
25 A Investment Pool Cumulative Real Returns
by Institution (June 30)
204
25 B
Investment Pool Cumulative Real Returns
by Institution (May 31)
218
Asset Allocation
Investment Pool Asset Allocation
26
220
27 A Asset Allocation by Investment Pool (June 30)
222
27 B
Asset Allocation by Investment Pool (May 31)
250
Change in Investment Pool Asset Allocation
28
254
8
v
CONTENTS
Part II
Exhibits (continued)
Investment Pool Characteristics (continued)
Management Expenses
29
Investment Pool Investment Management Expenses
255
Investment Pool Custodial Expenses
30
256
Managers and Custodians
Investment Management Structures by Institution
31
257
Custodians by Institution
32
400
Part III
Appendixes
Glossary
A
427
Descriptions of Market Indexes
B
433
Contributors, Sponsors, and Associates
437
Vii
Foreword
Because skillful endowment management is crucial to the financial well-being of America's
colleges and universities, the annual NACUBO Endowment Study (NES) seeks to help administrators and
trustees evaluate the performance of their endowments and to acquaint them with the investment policies
and practices of other higher education institutions.
First published in
1971, the NES was originally based on a prior survey conducted by
administrators at Dartmouth College. The earliest editions focused solely
on investment performance, but
subsequent years have seen the NES expand to include a broad variety of issues of
concern to trustees and
administrators, including asset allocation, spending rates, and manager and custodial relationships. As the
most comprehensive published source of data on college and university endowments, the NES has become
the authoritative guide to the investment management practices and trends of these institutions.
James E. Morley Jr.
President
National Association of College
and University Business Officers
Washington, D.C.
January 1996
8
ix
Acknowledgments
This study was prepared under the direction of NACUBO by Cambridge Associates, Inc.
Cambridge Associates provides investment and financial research and consulting services to nonprofit
endowed institutions.
The firm has offices in Boston, Washington, D.C., San Francisco, and London.
NACUBO would like to thank Cambridge Associates for its fine work in preparing this study and in
administering the questionnaires on which it is based.
NACUBO would also like to acknowledge the financial support provided by the firms identified in
this volume and in the recognition booklet.
Without their generous contributions, NACUBO could not
publish so comprehensive an analysis of endowment management practices.
9
xi
Abstract
Of the 463 institutions participating in the 1995 NACUBO Endowment Study (NES), 461 report
1.
endowment assets, which total $102.5 billion as of fiscal 1995 year-end. These assets remain highly
concentrated: 49 institutions (11%) with endowments of $400 million or more represent 62% of the
total, and just 17 institutions (less than 4%) with assets in excess of $1 billion represent almost 44% of
the total.
For fiscal year 1995, the equal-weighted mean total return of the 394 college and university investment
2:
pools providing June 30 data for this year's study is 15.5%, dramatically more than the 3.0% earned
the previous year. The dollar-weighted mean total return is 16.9% (versus 4.5% last year), and the
median, 15.5% (versus 3.0% in 1994). Institutions that reported returns on a gross basis (i.e., before
deduction of investment management expenses) earned an average return of 16.0%, while those that
reported net returns averaged 15.3%.
Because endowment assets are invested predominantly in domestic stocks and bonds, the relative
3.
performance among endowment investment pools typically depends primarily on their asset allocation
between these two major asset classes.
In fiscal year 1995, domestic common stocks returned a
rousing 24.7% (as measured by the Wilshire 5000), and domestic bonds rallied from their 1994 slump
to return 12.5% (as measured by the Lehman Brothers Aggregate Bond Index). Cash equivalents (91-
day U.S. Treasury bills), which had outperformed both stocks and bonds in fiscal 1994, returned 5.6%,
while foreign stocks (measured by the MSCI EAFE Index), returned only 1.7% compared to 17.0% the
previous year.
A higher allocation to cash, which is characteristic of smaller endowments,
was
therefore a drag on performance in 1995, while the higher equity allocations of the larger endowments
enabled them to earn the highest return of any group, despite their having the lowest allocation to
domestic common stocks. The average return for those investment pools with assets in excess of $400
million was 16.6%; for those with assets of $100 million to $400 million it was 15.9%; for those with
assets of $25 million to $100 million, 15.8%; and for those with assets of $25 million and less, 13.8%.
In general, there was very little shift in the average asset allocation from June 30, 1994 to June 30,
4.
1995, although it may be worth noting that larger institutions have been increasing their commitments
to equity real estate, profiting from the recovery in that asset class. The largest change in the average
allocation of assets
the 2.4-percentage-point increase in domestic common stock exposure,
is
presumably as a result primarily of market action.
Despite the wide disparity in returns between
domestic and foreign currency common stocks, the average allocation to the latter again increased,
although by a much smaller margin than in recent years. Among the largest group of institutions,
however, the allocation to foreign stocks declined slightly
-- but this is also attributable to the superior
performance of domestic common stocks rather than to active asset allocation decisions.
The most
10