College Endowments Took A Big Hit In Fiscal Year 2022

College endowments achieved an average -8% return in Fiscal Year 2022, a sharp downturn from the prior year when the average return was a robust 30.6%, and the first year that colleges saw a negative average return since 2016. Those figures are highlighted in a just-released report by the National Association of College and University Business Officers (NACUBO) and TIAA.

The 2022 NACUBO-TIAA Study of Endowments® is based on responses from 678 institutions and covers the fiscal year July 1, 2021–June 30, 2022.

“The 2022 fiscal year was truly a tale of two markets, with positive economic tailwinds driving equities higher through December 2021, followed by a crushing combination of inflationary pressures and other factors that forced most major investment indices down sharply by the year’s close,” said Jill Popovich, Senior Managing Director, Regional General Manager at TIAA, in a press release accompanying the report.

The 678 participating institutions reported holding endowment assets worth a total of $807 billion, a decline of about 4% from the year before. The average endowment size in the survey was $1.2 billion, much larger than the median endowment, which was about $203.4 million.

The market value of an endowment reflects the net impact of: 1) withdrawals to fund institutional operations and capital expenses; 2) payment of management and investment fees; 3) additions from donor gifts and other contributions; and 4) investment gains or losses.

The news would have been worse had it not been for the fact that donations to college endowments held up very well during the year, rising an average of 22%. Those gifts help offset some of the losses in endowment value caused by the dismal market performance.

Size Mattered

Large endowments fared better than smaller ones. The market value for the largest endowments declined by 3.8% while the average decline for the smallest ones was 9.6%. The main reason for that difference was attributed to the fact that larger endowments invested greater amounts in private markets, such as venture capital and private equity, enabling them to better moderate volatility. Smaller endowments, by contrast, allocated more to public equities and public fixed income.

Likewise, the largest endowments (more than $1 billion in assets) performed the best, with an average return of -4.5%. The smallest endowments (less than $25 million) were the weakest performers, with returns of -11.5%.

Student Financial Aid Accounted For Almost Half of Endowment Spending

The respondents reported spending a total of $25.85 billion from their endowments in FY22, an increase from the $23.89 billion reported in FY21. The average annual spending rate in FY22 was 4.17%, down from 4.79% in FY21. The actual dollars that an endowment spends can increase even when the spending rate does not because spending is based on a moving average of the endowment’s value over several years. Good years can smooth out the effects of bad ones.

Of the $25.85 billion total, 46% was distributed for student financial aid, a similar level to FY21. Academic programs and research received an average of 15.6% of endowment spending. Endowed faculty positions received 11%, campus operations and maintenance 10%, and all other purposes received a total of 17%.

Almost three-quarters of the institutions allocated endowment money to fund some portion of their operating budget, with the median percentage of operations funded reported to be 5.3% percent.

“Even in a difficult year, colleges and universities used their endowments for student- and mission-focused support, including student financial aid,” said Lynne Schaefer, interim president and CEO of the National Association of College and University Business Officers (NACUBO). “Endowments serve as a source of reliable and relatively steady revenue that higher education institutions and students can count on, regardless of market conditions.”

Harvard Still Number One

Harvard University maintained its position as the university with the largest endowment, valued in FY 2022 at $49.4 billion, a 4.7% decrease from the prior year.

Sixteen institutions reported endowments of $10 billion or more. Among all surveyed institutions, 136 reported endowments over $1 billion. The majority of endowments were valued at $250 million or less.

The top 20 institutions were:

1. Harvard University $49.4 billion
2. University of Texas System $42.7 billion
3. Yale University $41.2 billion
4. Stanford University $36.3 billion
5. Princeton University $35.8 billion
6. Massachusetts Institute of Technology $24.7 billion
7. University of Pennsylvania $20.7 billion
8. Texas A&M University System & related foundations $18.2 billion
9. University of Michigan $17.3 billion
10. Notre Dame University $16.7 billion
11. University of California $15.4 billion
12. Northwestern University $14.1 billion
13. Columbia University $13.3 billion
14. Washington University $12.3 billion
15. Duke University $12.1 billion
16. Vanderbilt University $10.2 billion
17. Emory University $9.9 billion
18. University of Virginia $9.9 billion
19. Cornell University $9.8 billion
20. The Johns Hopkins University $8.2 billion