Endowment returns averaged 7.7% in fiscal 2023 (2024)

Dive Brief:

• College endowment returns averaged 7.7% after fees in fiscal 2023, with gains largely due to strong public equity markets, according to new data released Thursday.
• Smaller endowments saw the strongest one-year investment results in fiscal 2023, according to the annual study conducted by the National Association of College and University Business Officers and asset management firm Commonfund. Those with values under $50 million had an average return of 9.8%, while those worth over $5 billion had an average return of just 2.8%.
• This divide is due to the allocations of smaller endowments skewing toward publicly traded securities, which performed well in fiscal 2023. Larger endowments, on the other hand, tend to invest more in private markets, which were largely flat or moderately negative during the year.

Dive Insight:

Although fiscal 2023 had a bumpy start, the public equity markets were strong for the last nine months of the year, according to a joint release from NACUBO and Commonfund. Fiscal years typically start on July 1 for higher education institutions.

“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 President and CEO Kara Freeman said in a statement.

The results provide welcome relief to college investment officers. The previous year, fiscal 2022, brought an average one-year loss of 8% for endowment returns, a decline driven by elevated inflation, rising interest rates and poor corporate earnings.

The latest NACUBO-Commonfund study is based on 688 institutions with total endowment assets of $839.1 billion. The median endowment size of study participants for fiscal 2023 was $209.1 million.

The study found 10-year returns for endowments averaged 7.2%. Although smaller endowments posted larger returns in fiscal 2023, bigger endowments have historically had higher returns. In fact, institutions with over $5 billion in assets have 10-year average returns of 9.1%.

“Longer-term returns are of paramount importance to the financial health and sustainability of perpetual institutions such as colleges and universities,” CommonfundInstitute Executive Director George Suttles said in a 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.”

Study participants withdrew about $28.4 billion from their endowments in fiscal 2023, a 8.4% increase over the prior year.

Nearly half of those distributions, 47.7%, went to financial aid, the biggest category by far. Research ranked second at 17.5%, followed by 11.1% toward endowed faculty positions and 7.4% toward campus facility maintenance and operation.

On average, endowments funded 10.9% of the study participants’ operating budgets. However, institutions with endowments valued at over $1 billion used them to fund over 17% of their budgets.

Market value changes of the nation’s largest endowments were mixed in fiscal 2023.

The market value of Johns Hopkins University’s endowment, for instance, grew to $10.5 billion, up 27.8% compared to the year before. On the other hand, the market value of Washington University in St. Louis’ endowment dipped 6.4% to $11.5 billion.

Correction: A previous version of this article misidentified NACUBO's partner on the study, which was Commonfund. It also misstated George Suttles' title. Suttles is executive director of Commonfund Institute.