Schools ride high stock, VC returns to 15% gain

Beaumont Tower, Michigan State University
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Beaumont Tower, Michigan State University

Investments by academic institutions did well in 2014, boosting long-term performance records hit during the financial crisis.

College and university endowments gained an average of 15.5 percent net of fees in fiscal 2014, up from 11.7 percent for 2013, according to final data from 832 U.S. colleges and universities compiled by school association NACUBO and investment manager Commonfund. The 2014 fiscal year ran from July 1, 2013, to June 30, 2014.

Domestic equities generated the highest return (22.8 percent), followed by international equities (19.2 percent). Alternative strategies—including hedge, private equity and venture capital funds—returned 12.7 percent. Fixed income investments returned 5.1 percent.

Read MoreThese elite schools have best endowment returns

The one year gain of 15.5 percent compares to 24.6 percent for the S&P 500 Index and 16.5 percent for a portfolio of 60 percent stocks and 40 percent bonds (using the S&P 500 and Barclays U.S. Aggregate Bond Index).

While that may appear low, institutions generally seek relatively smooth, long-term returns in the high single digits as opposed to trying to beat the indexes. The average return over the last 10 years was 7.1 percent, according to the study.

"Perhaps the most significant finding is the rise in longer-term returns, which will be very beneficial to colleges and universities that are seeking to serve a broader variety of students than ever before," NACUBO President and CEO John Walda said in a statement. "A higher level of long-term returns enables them to support their missions while remaining on a sound financial footing."

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Schools with endowments of more than $1 billion produced the highest returns, 16.5 percent, last year. That came from their larger allocations to private funds, like PE and VC, which usually require big investment minimums and additional staffing or consulting. Colleges and universities over $1 billion have an average of 57 percent of their funds in alternative strategies, compared to 10 percent for schools under $25 million, according to the study.

VC allocations were the top performing alternative strategy, up an average of 23.3 percent in fiscal year 2014. PE funds were second at 16.5 percent. Both profits were much higher than the previous year (6.1 percent and 9.1 percent, respectively).

A recent study of such large endowments focused on the Ivy League and similar elite schools by executive recruitment firm Charles A. Skorina & Co. found that Yale, Duke and Notre Dame produced the highest one year returns for the 2014 fiscal year, while Columbia, Yale and MIT performed best over 10 years.

Endowments to gain significantly in size include Michigan State University (assets rose 31 percent to $2.14 billion from fiscal 2013 to 2014); the Texas A&M University System (up 27.2 percent to $11.1 billion); and the University of Texas System (up 24.3 percent $25.4 billion), according to the NACUBO and Commonfund study. Those gains aren't just from investments; the data can also include donor gifts and other contributions.

Elite school endowment performance over 10 years

 
Endowment
10-yr rtn %
AUM $bn
1-yr rtn%
3-yr rtn %
5-yr rtn%
1 Columbia 11 9.2 17.5 10.3 14.2
2 Yale 11 23.9 20.2 12.3 13.5
3 MIT 10.9 12.4 19.2 12.7 13.2
4 Notre Dame 10.8 9.8 19.7 11.3 13.2
5 Duke 10.8 7 20.1 11.2 14.2
6 Princeton 10.5 21 19.6 11.3 14
7 Stanford 9.9 21.4 17 9.8 13.2
8 Univeristy of
Chicago
9.6 7.5 12.7 8.7 12.6
9 Dartmouth 9.2 4.5 19.2 12.2 13
10 Harvard 8.9 36.4 15.4 12.2 11.6
NA Endowments
>$1bn
8.5 NA 16.8 9.6 12.1
11 Brown 8.3 3.2 16.1 9.7 11.5
12 Cornell 8.2 6.2 15.8 8.9 11.7
13 University of
Pennsylvania
8.1 9.6 17.5 10.9 12.9
NA S&P 500 7.8 NA 24.6 15.4 18.1
Source: Charles A. Skorina & Co., November 2014

The study also noted that effective spending rates remained steady at 4.4 percent, but nearly three quarters of endowments increased their spending in dollar terms.

Read MoreColleges up big on PE, VC funds