Endowments & Foundations

Over the past decade, foundations and other entities awarding higher education grants have shifted their focus toward programs that encourage student retention and graduation, particularly for low-income and first-generation college students.

Can a university’s characteristics be a better indicator of an endowment’s effectiveness than endowment size? 

In the aftermath of the 2008-09 recession, many individuals are worried about their short-term and long-run  financial security. In the nonprofit and philanthropic sector (hereafter referred to as “the sector”), there is speculation that such concerns among its workers are undermining the sector’s ability to attract and retain the new talent required to be successful, while simultaneously preventing senior leaders and older employees from retiring.

This paper summarizes a survey of university endowment funds, with a particular focus on the composition of endowment investment committees and how this composition is associated with a number of key activities. In general, we find that the typical investment committee member has financial credentials of some form and has experience as an executive or serving on other boards. We also find that most investment committee members are themselves donors to the university.

In 2007, Davidson College became the first private liberal arts college to offer its students a financial aid package that meets 100% of their demonstrated need without any loan component. The Davidson Trust has increased the access to Davidson College of students from lower and middle-income families, contributing to a more economically diverse student body. Pre-Davidson Trust, need-based financial aid was accorded to approximately 33% of Davidson students; post-Davidson Trust, an average of 45% of entering students is qualifying for need-based aid.

Endowments are stocks of financial and real assets held by colleges and universities to generate income for current and future operations. Donors often place specific restrictions on the use of their gifts. An endowment’s portfolio must be allocated for long-run investment returns and also for short-term liquidity to meet cash flow needs, but this has proven challenging in the current economy.

Traditional U.S. and international equities performed well and domestic bonds performed poorly in fiscal 2004, thus rewarding college and university endowments with large allocations to the former and small allocations to the latter. Overall, institutions participating in the 2004 NACUBO Endowment Study experienced average returns of 15.1%, a welcomed result after three very difficult years. Other highlights of the study, which is administered by TIAA-CREF on behalf of NACUBO, include: Six of the top-10 performing institutions in 2004 had endowments of less than $100 million.

Investment managers at the 2005 NACUBO Endowment Forum appeared grateful for the strong equity returns in fiscal 2004, but expressed little hope for a continuation of stellar performance going forward. Pundits said that U.S. equities are hindered by the large federal budget deficit, the large foreign trade deficit, and the low savings rate. U.S. fixed-income investments also may come under pressure if the economy transitions into a period of higher inflation. In general, speakers at the forum recommended broad diversification of investments and an overall lowering of risk exposure.

NACUBO is the National Association of College and University Business Officers, representing chief administrative and financial officers at more than 2,100 colleges and universities across the country. The annual NACUBO Endowment Study provides important information for evaluating the performance and management of institutional endowments. The study is the primary source of institutional endowment data in the U.S., providing a number of benchmarks for performance, asset allocations, spending policies, and other factors.