College Endowment Returns Rebounded in Fiscal 2023

What You Need to Know

The institutions reported an 8% loss for the previous fiscal year.
Asset allocation was the major factor behind return differences across the study’s seven size cohorts.
Forty-eight percent of their spending policy distributions went to student financial aid.

U.S. colleges and universities and their affiliated foundations returned 7.7%, net of fees, for fiscal year 2023, ended June 30, according to the 2023 NACUBO–Commonfund Study of Endowments. 

This was a sharp turnaround from the 8% loss they reported for the previous fiscal year. 

In total, the 688 institutions that participated in the study withdrew $28.4 billion from their endowments, up 8.4% year over year. Forty-eight percent of institutions’ spending policy distributions went to student financial aid.

Other spending was distributed across academic programs and research, endowed faculty positions, operations and maintenance, and other purposes.

“From the point of view of college and university chief business officers, the results of this year’s endowment study are ideal — a sound rate of return demonstrating good fiscal stewardship leading to additional resources available to the students, faculty, and programs that are our core mission,” NACUBO’s president and chief executive, Kara Freeman, said in a statement. 

The 688 institutions in this year’s study represented a total of $839 billion in endowment assets. The median endowment size was $209 million, and about a third of study participants had endowments of $100 million or less.

Data gathered for the fiscal 2023 study showed that trailing 10-year returns averaged 7.2%, in line with the current year’s 7.7% return.

“Longer-term returns are of paramount importance to the financial health and sustainability of perpetual institutions such as colleges and universities,” George Suttles, Commonfund Institute’s executive director, said in the statement. “Endowments generally pursue long-term returns sufficient to fund their annual effective spending rate, keep pace with inflation, pay investment management costs and retain an increment for future endowment growth.”

Researchers segmented study data into seven size cohorts ranging from endowments with assets of less than $50 million to those with assets of more than  $5 billion. They also segmented data by type of institution: private, public, institutionally related foundations, combined endowment/foundations and other.

Along with the report, NACUBO and Commonfund published a white paper that reviews key developments in endowment management since 1974.

Asset Allocation and Returns

Asset allocation was the major factor behind return differences across the study’s seven size cohorts. Historically, institutions with larger endowments have tended to secure better one-year investment results than those with relatively smaller endowments. 

The reverse happened in fiscal 2023, owing to smaller institutions’ substantially larger allocations to publicly traded securities — specifically U.S. equities, non-U.S. equities (developed markets) and global equities. These allocations posted the strongest returns for the fiscal year.