In the realm of higher education finance, fiscal year 2023 brought a notable uptick in endowment returns, signaling a rebound from the previous year's downturn. Despite this recovery, these returns still fall short of the remarkable heights observed in fiscal year 2021.
Solid Rebound in Endowment Returns
According to the latest study conducted by the National Association of College and University Business Officers (NACUBO) and Commonfund, endowment returns surged by 7.7 percent in fiscal year 2023. This marks a significant reversal of fortunes after experiencing an 8 percent decline in the preceding fiscal year.
Released today, the endowment report highlights that institutions faced initial challenges in fiscal 2023 but rebounded notably in the latter part of the year. This resurgence is attributed to the robust performance of public equity markets globally, particularly in the final nine months of the fiscal year. However, despite this improvement, the current returns still fall considerably short of the exceptional performance witnessed in fiscal year 2021 when the average endowment soared by 35 percent.
Performance Analysis and Institutional Rankings
The report, based on data from 688 institutions with a combined endowment value of $839 billion, underscores the performance disparities among various institutions. While the largest endowments, including those of Harvard University, the University of Texas system, Yale University, Stanford University, and Princeton University, maintained their top positions, the overall returns for megawealthy institutions remained sluggish in fiscal year 2023.
However, noteworthy exceptions include the University of California (UC) system, which secured a place in the top 10 with a robust return of 14.7 percent, propelling its endowment to $17.7 billion. Similarly, Duke University and Johns Hopkins University outperformed their peers, achieving endowment returns higher than 7.7 percent.
Endowment Spending and Philanthropic Trends
The study also sheds light on endowment spending trends, indicating an across-the-board increase in spending rates. Private institutions, on average, directed 5% of their endowment funds, whereas public counterparts allocated 4.1%. Notably, a significant portion of endowment spending, nearly 48 percent, was directed towards student financial aid.
Moreover, philanthropic contributions to endowments totaled $13.3 billion in fiscal year 2023, reflecting a slight decrease from the previous year. However, nearly two-thirds of colleges reported receiving donations earmarked for diversity, equity, and inclusion initiatives, despite facing scrutiny from conservative lawmakers in some states.
Looking Ahead: A 50-Year Retrospective and Future Outlook
This year's report also marks the 50th anniversary since NACUBO began tracking college endowments. Over this period, the study has evolved significantly, reflecting changes in investment strategies, responsible investing practices, and emerging trends such as environmental, social, and governance (ESG) considerations.
As the financial landscape continues to evolve with advancements in digital currencies and artificial intelligence, NACUBO and Commonfund Institute anticipate further changes and challenges in the management of college endowments. Despite uncertainties, both organizations remain committed to analyzing and monitoring these developments to ensure the long-term financial sustainability of institutions of higher education.
The findings from the fiscal year 2023 endowment report provide valuable insights into the financial health of colleges and universities across the country. While the rebound in endowment returns is a positive development, institutions must remain vigilant and adaptable to navigate the evolving financial landscape effectively. With prudent management and strategic planning, institutions can continue to leverage their endowments to support their educational missions and drive long-term success.
