January 31, 2012
By Andrea Fuller
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."
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