U.S. Endowments Post Lowest Investment Returns in Four Years

(Bloomberg) -- U.S. endowments earned a median investment return of 2.6% for the latest year, the lowest since fiscal 2016, offering little relief to colleges as the Covid-19 pandemic constrains tuition and other revenue sources.

Bigger funds lagged behind the overall group, according to results published Tuesday by Wilshire Trust Universe Comparison Service. Endowments with more than $500 million in assets gained 2.4% before fees in the 12 months through June, the data show. Funds broadly trailed the S&P 500, which rose 5.4%.

Colleges are under increasing financial pressure as it's unclear how many students will be able to attend in the semester starting this month or next with the coronavirus still raging. Endowments posted gains for the fourth straight year after rebounding from losses in the March quarter, when the pandemic crushed global markets.

“The endowments are a stable place to be able to go,” said Robert Waid, a managing director at Wilshire Associates. “They invest for the long term and they have performance that reflects that.”

Colleges, with about $630 billion in assets, typically seek to earn at least 7% annually to account for spending rates -- which fund financial aid and professor salaries -- of 4% to 5% plus inflation.

This is the second consecutive year in which larger funds failed to beat their smaller peers. Last year, the biggest funds earned a median 5.3% while endowments of all sizes returned 5.9%, Wilshire data showed.

Endowments broadly gained more than 12% in the three months through June, making it the best quarter in more 20 years, as stocks recovered. For large funds, it was the best quarter in eight years.

Big funds tend to have less of their money invested in U.S. equities -- 6.1% compared with 37.5% for the endowment universe -- so they may not have benefited as much from the S&P 500's 20% surge in the June quarter.

Larger funds may also have been held back by much higher allocations to alternative assets such as private equity, according to Waid.

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