Endowment Returns Rebound in FY 2010

This represented a sharp improvement over the average -18.7% return (net of fees) reported in last year’s study for fiscal year 2009. According to a press release, this year’s study showed that the average annual three-year return for all institutions was -4.2%. The corresponding five-year return figure was 3%, while for 10 years the average annual return was 3.4%.  

Returns were positive for all major asset classes except real estate, while last year only fixed income showed a positive return. The highest return this year came from domestic equities, which gained 15.6%. This was followed by fixed income, at 12.2%; international equities, at 11.6%; alternative strategies, at 7.5%; and short-term securities/cash/other, at 2.7%.   

Within the alternative strategies category, distressed debt led all allocations with a return of 24.6%, followed by private equity, at 14.1%, and energy and natural resources, commodities and managed futures, at 13.2%. Marketable alternatives—a category that includes hedge funds, absolute return, market neutral, long/short, 130/30, event-driven strategies and derivatives—returned 9.9%. Only the sub-asset class of private equity real estate (non-campus), which returned -15.8%, showed a negative return in this year’s Study, the press release said.  

Allocations to major asset classes in this year’s Study were largely unchanged from last year: 

• Domestic equities – 15% (down from 18% in FY2009); 
• Fixed income – 12% (down from 13%); 
• International equities – 16% (up from 14%); 
• Alternative strategies – 52% (up from 51%); 
• Short-term securities/cash/other – 5% (up from 4%).  

Endowments reported that it cost 66 basis points, on average, to manage their funds in FY2010. The median cost was 52 basis points. Comparable data reported in FY2009 was an average of 63 basis points and a median of 53 basis points.  

Of the 850 study participants, 161 reported having some form of social investing policy—down moderately from last year’s 178 out of 842 study participants. Of these 161 institutions, 45% screen all of their portfolios (versus 55% last year), while 44% screen part of the portfolio (up from 34% last year).