College and university endowments had a good 2023 thanks to the stock market
2023 was a good year for the equities markets, and that was good news for the colleges and universities that have money invested through their endowments. According to an annual survey out on Thursday by the National Association of College and University Business Officers, the average return on endowments in fiscal year 2023 was 7.7%.
You can think of an endowment like it’s a pot of money for a university to use — or really, like lots of little pots of money each given by a different donor, often for a particular purpose.
“This money can be used to build a new building. This money can be used to go to student financial aid,” said Dominique Baker, a professor of education and public policy at the University of Delaware.
She points out that the majority of colleges in the U.S., both public and private, have endowments. They can create a kind of financial backstop for the schools, said Ted Mitchell, president of the American Council on Education.
“If other things in the world don’t go right — say enrollment plummets or there’s a natural disaster — there’s a pot of money that can be used to support the operations of the institution,” he said.
The survey found that endowments provide, on average, about 11% of the annual operating budgets for schools. In 2023, that money went to academic programs, faculty salaries and facilities; about half went to grants and scholarships for students.
“The student never actually gets cash in their pocket for that, right? It just gets applied to their tuition and fees bill,” said Sarah Pingel with the National Center for Higher Education Management Systems. “And now, the institution can use those same dollars for whatever short-term needs they have within that particular fiscal year.”
The median endowment in the survey was worth about $209 million, and the 7.7% average return last year came from the stock market.
“The top large cap tech stocks drove a huge portion of the return for the fiscal year,” said Tim Yates of Commonfund, an asset management firm that collaborated on the survey.
He notes that, historically, institutions with larger endowments tended to perform better, in part because they have more money in private investments. But last year, those didn’t do so well.
“Private equity and venture or startup companies, smaller companies, middle-market companies, things like that didn’t keep up with that sharp rally,” he said.
Some schools are looking for big returns, Yates said, which is why they tend to invest outside the regular old stock and bond markets.