– The 2005 fiscal year was generally good to college endowments, which saw an average rate of return of 9.3 percent, according to data being released today by the National Association of College and University Business Officers.
While the average rate of return was less than the previous year’s average (15.1 percent), the 2005 average return exceeded investment industry benchmarks. And NACUBO’s report about the data described the figure as “optimal†in that it would allow the vast majority of colleges to support their operations while accounting for inflation and investment fees. The overwhelming majority of colleges saw increases in 2005, with only scattered exceptions  notably among private colleges in Georgia, where Coca-Cola has historically fueled endowments and the declines in the company’s stock have hit some institutions hard.
While most institutions did well in 2005, the endowment study reflects the extent to which the best way to make a lot of money is to have a lot of money to start with. For colleges with endowments over $1 billion, the average return was 13.8 percent, while the average for those up to $25 million was 6.9 percent. At levels in between, there was a direct correlation between size of endowment and rate of return.
Generally, colleges with larger endowments are able to take more risks with portions of their portfolios  and those risks can result in substantial gains. And several institutions that are not in the mega-endowment category, but that performed quite well this year, credited a willingness to try some bolder investment strategies than they had used in the past.
Gaps between institutions in the endowment survey are substantial. Harvard University’s $25 billion fund tops second place Yale University by more than $10 billion. The growth alone in Harvard’s endowment during the last year exceeds the size of the entire endowment of the University of Southern California or the University of Virginia. If you added up the endowments of the 10 historically black colleges with the largest funds, they would not equal the endowment of Williams College. Add up the endowments of the 10 community colleges with the largest funds and they don’t equal the endowment of the University of South Florida.
