Despite the continuing struggles of the economy, university endowments continued to grow in 2011, bringing in a 19-percent return on their investments.
That's the good news from the annual survey of endowment returns by the National Association of College and University Business Officers and the Commonfund Institute. The bad news is that endowments have yet to rise from their prerecession levels. And trouble may lie ahead for 2012.
Endowments have been buffeted by the turbulent economic climate of recent years, with 2009 bringing a 19-percent drop in returns, followed by a 12-percent rise in 2010.
This past year, returns were strong across all asset classes, and domestic equities—stocks in U.S. companies—brought in the strongest numbers, at 30 percent.
NACUBO and Commonfund do not release individual institutions' endowment returns, but they do report overall changes in the size of endowments—changes that would reflect not only investment returns but also gifts received or endowment money spent. The University of California at Los Angeles's endowment grew by 49.3 percent, the most of any endowment, because of several large gifts to the university. Oklahoma State University and the University of Iowa also saw their endowments rise by more than 30 percent.
Despite the good news, there are reasons to worry that endowments may not do as well in the current fiscal year.
The 2011 fiscal year ended June 30—before the European debt crisis worsened and economic woes in the United States set off an uncomfortable new round of market volatility. More trouble in Europe or Asia, experts say, could affect U.S. endowments—not only by alarming the stock markets, but also because endowments have 17 percent of their assets in international equities.
John Griswold, executive director of the Commonfund Institute, says he still expects positive returns for 2012, but he doubts those returns will be as good as last year's. He says that he remains concerned about the economy, as well as cuts in government support that may force universities to tap into their reserves.
"We think we're probably in a slow-growth environment," he says. "There are still a tremendous number of challenges economically."
Trouble in the international markets has led some endowment managers to proceed with caution. The University of Texas Investment Management Company brought a 20-percent return in the fiscal year ending June 30, but the company's chief executive, Bruce Zimmerman, remains concerned. Mr. Zimmerman says the company has recently made more conservative investments, such as in bonds and gold.
"In terms of our outlook going forward, we are very concerned and are positioned defensively," he says. "Our concern is that the fundamental economic issues, namely too much debt in the developed world, have not been addressed. It's the 800-pound gorilla in the room that no one wants to talk about."