DOCUMENT RESUME HE 032 552 ED 435 332 NACUBO Endowment Study, 1998: Executive Summary. TITLE Cambridge Associates, Inc., Boston, MA. INSTITUTION National Association of Coll. and Univ. Business Officers, SPONS AGENCY Washington, DC.; Association of Governing Boards of Universities and Colleges, Washington, DC. NC1485 REPORT NO ISSN-1067-8301 ISSN 1999-00-00 PUB DATE NOTE 49p. National Association of College and University Business AVAILABLE FROM Officers, P.O. Box 362, Annapolis Junction, MD 20701-0362 ($34.95 non-members; $24.95, members). Tel: 301-362-8198. Reports - Research Numerical/Quantitative Data (110) PUB TYPE (143) MF01/PCO2 Plus Postage. EDRS PRICE Capital; *Educational Finance; *Endowment Funds; Financial DESCRIPTORS Policy; Financial Services; Fiscal Capacity; Higher Education; Income; *Investment; *Money Management; Private Colleges; Risk Management; Tables (Data); *Trusts (Financial); Universities *Asset Allocation IDENTIFIERS ABSTRACT This executive summary presents the results of a 1998 study of endowment assets of 509 higher education institutions, and is intended to allow administrators and trustees to evaluate the performance of their endowments and to acquaint them with the investment policies and practices of other higher:education institutions. The report begins with a brief section offering notes on the data. Following are two sections of exhibits. In the first, tables, charts, and text provide information on endowment characteristics, including endowment assets, a breakdown of assets reported by public and private institutions, historical endowment growth and market indexes, endowment asset allocation, withdrawals from endowments, and endowment spending rules. The second section deals with investment pool characteristics, and includes tables, charts, and text with information on investment pool nominal and real returns, range of nominal returns, historical investment pool returns, investment pool asset allocation, and investment management and custodial expenses. Appendix tables list institutions ranked by endowment assets and institutions ranked by investment pool average annual compound return. A list of contributors, sponsors, and associates is appended. (CH) Reproductions supplied by EDRS are the best that can be made from the original document. k Executive Summary In cooperation with the Association of Governing Boards of Universities & Colleges National Association of College and University AVAILABLE BEST COPY IPrepared by U.S. DEPARTMENT OF EDUCATION PERMISSION TO REPRODUCE AND Office of Educational Research and Improvement DISSEMINATE THIS MATERIAL HAS Cambridge EDUCATIONAL RESOURCES INFORMATION BEEN GRANTED BY CENTER (ERIC) eiThis document has been reproduced as D. Klinger received from the person or organization Associates, Inc. originating it. Minor changes have been made to improve reproduction quality. TO THE EDUCATIONAL RESOURCES Points of view or opinions stated in this INFORMATION CENTER (ERIC) document do not necessarily represent 1 official OERI position or policy. 1998 NACUBO ENDOWMENT STUDY Executive Summary Prepared by Cambridge Associates, Inc. National Association of College and University Business Officers Copyright ©1999 by the National Association of College and University Business Officers 2501 M Street, N.W., Suite 400 Washington, DC 20037 All rights reserved Printed in the United States of America ISSN 1067-8301 4 CONTENTS Foreword Acknowledgments vi Notes on Data vii Exhibits Endowment Characteristics Endowment Assets 1 Public and Private Institutions 1 Historical Endowment Growth and Market Indexes (NACUBO Endowment Wealth Index) 2 Endowment Asset Allocation 3 Withdrawals from Endowment 4 Endowment Spending Rules 4 Investment Pool Characteristics Investment Pool Nominal and Real Returns 7 Range of Nominal Returns 7 Historical Investment Pool Return 8 Investment Pool Asset Allocation 9 Investment Management and Custodial Expenses 10 Appendix Institutions Ranked by Endowment Assets 13 Institutions Ranked by Investment Pool Average Annual Compound Return 25 Contributors, Sponsors and Associates 39 Foreword Because skillful endowment management is crucial to the financial well-being of America's colleges and universities, the annual NACUBO Endowment Study (NES) seeks to help administrators and trustees evaluate the performance of their endowments and to acquaint them with the investment policies and practices of other higher education institutions. First published in 1971, the NES was originally based on a prior survey conducted by administrators at Dartmouth College. The earliest editions focused solely on investment performance, but subsequent years have seen the NES expand to include a broad variety of issues of concern to trustees and administrators, As the most including asset allocation, spending rates, and manager and custodial relationships. comprehensive published source of data on college and university endowments, the NES has become the authoritative guide to the investment management practices and trends of these institutions. James E. Morley Jr. President National Association of College and University Business Officers Washington, D.C. January 1999 6 vi Acknowledgments This study was prepared under the direction of NACUBO by Cambridge Associates, Inc. Cambridge Associates provides investment and financial research and consulting services to nonprofit endowed institutions. The firm has offices in Boston, Washington, D.C., San Francisco, and London. NACUBO would like to thank Cambridge Associates for its fine work in preparing this study and in administering the questionnaires on which it is based. NACUBO would also like to acknowledge the financial support provided by the firms identified in this volume and in the recognition booklet. Without their generous contributions, NACUBO could not publish so comprehensive an analysis of endowment management practices. vii Notes on Data Data Collection: NACUBO encourages all its member institutions with endowment assets in excess of $1 million to participate in the NACUBO Endowment Study. In August 1998, NES questionnaires were mailed to 657 colleges and universities with the request that they be returned by September 18, 1998. Endowment Data: Of the 657 institutions surveyed, 508 (77%) provided endowment market values. Of these, 439 (86%) provided endowment market values as of June 30. The next most common fiscal year-end date is May 31 (11%). Investment Pool Data: Of the 500 respondents providing investment pool data, 448 (90%) provided data as of June 30, 1998; 45 (9%) provided data as of May 31, 1998; and 7 reported data as of other dates. To make cross-institutional comparisons more meaningful, certain data presented in Part II (e.g., individual investment pool asset allocation and return) are grouped according to year ending dates. Because some institutions were unable to complete certain sections ofthe 1998 NES questionnaire, not all institutions are included in every exhibit. Where an exhibit is based on data derived from significantly fewer than all survey participants, that fact is footnoted. Three Definitions of "Average" Used in the 1998 NES: Except where otherwise noted in the text or exhibits, the "average" for any set of data (whether returns, asset allocation, or other characteristics) is the equal-weighted mean. The dollar-weighted mean and the median are also cited for some data sets. The median is the value that divides into two equal parts any given distribution of data (e.g., fiscal year 1998 returns for investment pools). Because the dollar-weighted mean provides as precise a measure as possible of the actual return produced by the aggregate investment assets of participating institutions, it is in many respects a more useful average than the equal-weighted mean. The deficiency of equal-weighted means is that they are in some respects misleading because they ignore the effects of the extreme concentration of endowment wealth among a relatively small percentage of participants in the NES. Real Rate of Return: The real, or inflation-adjusted, rate of return for a given investment is calculated by dividing the nominal total return by the appropriate deflator for the same time period. Throughout the 1998 NES, the deflation measure used for this purpose is the Consumer Price Index (CPI- U). Note that simply subtracting the deflator from the nominal total return does not result in an accurate computation of real total return. The formula is as follows: 1 + Nominal Total Return 1 = Real Total Return 1 + Deflator Foundations: For those institutions (typically public) for which an independent foundation is the repository of endowment assets, no distinction has been drawn between the foundation and the institution itself. 8 ENDOWMENT CHARACTERISTICS 9 ENDOWMENT CHARACTERISTICS FISCAL YEAR 1998 ENDOWMENT ASSETS Total Reported Assets by Endowment Size 509 institutions participated in the 1998 NACUBO Endowment Study (NES) and 508 reported endowment assets totaling $178.3 billion. Under $75mm This wealth remains highly concentrated; only 31 of 4.4% $75mm to these 508 schools have assets in excess of $1 billion, $300mm yet they control 53% of the total. 15.4% The largest endowment among all participating institutions continues to be that of Harvard University Over $lbn ($13 billion), while the University of Texas System 52.7% ($7.6 billion) remains the largest among participating $300mm public institutions. to $1bn 27.5% The participating public institution with the greatest endowment assets per FTE student is the Virginia Military Institute Foundation ($166,663 per FTE $178.3 billion student). Among private institutions, the highest (508 institutions) ranking is The Rockefeller University ($6,748,889 per FTE student). PUBLIC AND PRIVATE INSTITUTIONS Total Reported Assets by Institution Type The study includes 346 private and 162 public institutions providing 1998 endowment market values. Slightly more than one-half of the public institutions in this year's NES are research universities, and they hold 89% of the public sector endowment assets. Among the private institutions participating, only 39 (or 11%) are research universities, but their portion of the private institutions' aggregate endowment assets is 62%. 46% of the private institutions included in the study are baccalaureate schools (i.e., liberal arts), and these $178.3 billion control 22% of the private institutions' aggregate (508 institutions) endowment assets. 10