By Kaitlin Mulhere
January 31, 2017

Blame it on bad investments.

A brand-new study of 815 college endowments finds they had an average investment return in fiscal year 2016 of negative 1.9%—the lowest since the 2008-09 financial crisis.

That’s just one reason endowments slid in market value this past year, according to the annual NACUBO-Commonfund Study of Endowments, released Tuesday morning. Other key factors were management fees (sometimes in the millions of dollars) and a modest increase in spending.

At the country’s 10 richest colleges, endowments tumbled an aggregate $2.7 billion in value last year.

Those negative market returns came during a period in which the S&P 500 was up 4%. But endowment assets tend to have only a portion of assets in domestic stocks, and other markets were less rosy. An average 20% of endowment assets are invested in global stocks, for instance, and global and emerging market equities were down 9% and 11%, respectively. And so-called alternative strategies, including energy, commodities, and hedge funds—which account for more than half of endowment assets—were down 1.4% during fiscal year 2016, according to the report.

This past year’s negative returns also follow another year of lackluster investment performance, bringing the endowments’ 10-year average investment return down to 5%. That’s well below the 7.5% colleges say they need to sustain annual spending and management fees for the long haul.

In general, smaller endowments—those with $50 million or less—tended to fare the best for 2016, thanks to higher bond allocations relative to their wealthier counterparts. Bonds were up 3.6% for the 2016 fiscal year. Among the 10 biggest endowments, listed below, only one increased its market value by more than 1%. (That was the University of Pennsylvania, No. 7 on the list, with 5.7% returns for fiscal year 2016.)

At wealthy universities in particular, endowments play an integral role in a college’s budget. Schools with endowments of over $1 billion used their endowments to fund an average 16% of their operating budget, the study notes. At Harvard, more than a third of the operating budget comes from its enormous $35 billion endowment. So year-over-year declines are a matter of real concern.

But there is a modest silver lining in this year’s findings: At a time when wealthy colleges are under increased scrutiny from lawmakers about how they spend their endowments, three-quarters of the endowments studied said they actually increased the amount they spent out of their endowment. That said, the increase was fairly tepid: The average payout rate was 4.3%, up only slightly from last year’s 4.2%. (Legislation introduced in the past year aims to institute much higher mandatory payout rates.)

Here’s how the 10 wealthiest college endowments performed between 2015 and 2016. Changes in value reflect withdrawals to pay for college expenses, management fees, donations or gifts, and investment gains or losses.

  1. Harvard University, $34.5 billion: -5.2%
  2. Yale University, $25.4 billion: -0.6%
  3. The University of Texas System: $24.2 billion, 0.5%
  4. Stanford University, $22.4 billion: 0.8%
  5. Princeton University, $22.2 billion: -2.5%
  6. Massachusetts Institute of Technology, $13.2 billion: -2.2%
  7. University of Pennsylvania, $10.7 billion: 5.7%
  8. The Texas A&M University System, $10.5 billion: 0.6%
  9. University of Michigan, $9.7 billion: -2.1%
  10. Northwestern University, $9.6 billion: -5.3%

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