College endowments boomed in fiscal year 2021, study shows

S E E D E D   C O N T E N T

The average endowment's size increased by 35 percent, leaving 19 percent of institutions with endowments worth more than $1 billion. But experts say few students benefited from that growth.

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Emma Whitford February 18, 2022 Maddie Meyer/Wikimedia/Kathryn Donohew Photography/David Madison/Education Images/Getty Images Harvard, the University of Texas at Austin, Yale, Stanford and Princeton held the five largest endowments in fiscal 2021.

College and university endowments posted sky-high returns in fiscal year 2021, with endowments of all sizes growing by at least 20 percent, according to a new study. The average college endowment value increased by 35 percent, to $1.1 billion, and the median endowment size swelled to $200 million.

The study—conducted annually by the National Association of College and University Business Officers and the Teachers Insurance and Annuity Association of America—surveyed 271 public colleges and universities and their affiliated foundations, as well as 442 private institutions and seven noncollegiate nonprofits. Combined, these institutions boasted $821 billion in assets during fiscal year 2021, which began on July 1, 2020, and ended on June 30, 2021.

About 19 percent of institutions reported an endowment worth more than $1 billion, according to the study. Together, those institutions captured 83.7 percent of the total assets reported by all 720 institutions in the study. One in 10 institutions said their endowment was worth between $501 million and $1 billion, and more than half—57 percent—of institutions reported an endowment between $51 million and $500 million. About 13 percent of institutions said their endowment was valued at $50 million or less.

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Surveyed institutions posted a median return of 30.1 percent in fiscal 2021, compared with a 1.8 percent median return in fiscal year 2020.

A strong U.S. market in fiscal 2021 drove high returns for endowments of all sizes, said Ken Redd, director of research and policy analysis at NACUBO.

"For large endowments, private equity and venture capital were really the drivers of returns," Redd said. "For the smaller endowments, U.S. stocks were driving their performance."

Endowments worth $1 billion or more invest more of their money in marketable alternatives—including hedge funds—and private equity than in any other individual asset class. Private institutions also invest more in such asset classes than public institutions, according to the study. Small endowments, worth $100 million or less, invest, on average, between 38 and 40 percent of their funds in U.S. equities and between 23 and 32 percent in fixed-income assets.

These asset allocations are likely to shift this year as rising interest rates and inflation become a greater concern, the study notes.

Alumni and trustee ties give wealthy institutions access to some of the highest-performing private equity and hedge funds, said Charlie Eaton, an assistant professor of sociology at the University of California, Merced, and author of the book Bankers in the Ivory Tower, which explores the relationship between big finance and higher education inequity.

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"Not only do they invest larger shares of their portfolio in private equity and hedge funds, they invest with hedge funds and private equity funds that tend to earn the highest rates of return," Eaton said. "It's really not a viable strategy for a college or university with a smaller endowment to grow its endowment. There's just no way you can match what the elite institutions are doing."

The return gap between the largest endowments—worth $1 billion or more—and the smallest, worth $25 million or less, was 13 percentage points, according to the study. The growing wealth inequality among higher education institutions mirrors the wealth gap among American individuals, Redd said.

"Wealthier people, especially during the pandemic, got even more wealthy," Redd said. "Unfortunately that meant that less wealthy people also saw negative effects. I think that societal trend is playing out in higher ed institutions as well as other institutions."

While growing endowments are good news for their institutions, very few students actually benefit from the high returns, Eaton said.

"The wealthiest schools in the U.S. will continue to be the last bastion of debt-free higher education. Harvard, Princeton, Yale, Stanford and a handful of others have used their endowment booms to increase financial aid for the students that they do enroll to the point where more than 90 percent of their students don't borrow at all," Eaton said. "That would be more encouraging if those schools were also using their endowment booms to enroll more students."

Harvard, Yale, Stanford and Princeton Universities—which boast four of the top five largest endowments—each enroll fewer than 10,000 undergraduate students. Even fewer of those students come from low-income backgrounds, Eaton said.

"In recent years, [the University of California] Berkeley has enrolled more low-income students than the entire Ivy League combined. Economist Raj Chetty and his collaborators have shown that 38 of the top private colleges and universities—many with large endowments—enroll more students from the top 1 percent of the income spectrum than from the bottom 60 percent combined," Eaton said. "For endowment growth to benefit students, we would need elite institutions with big endowments to enroll a lot more undergrads, and a lot more undergrads from less advantaged backgrounds."

Spending rates remained more or less constant throughout fiscal 2021 despite the endowments' growth. Institutions with endowments worth more than $1 billion spent 4.7 percent of their endowments, compared with 4.5 percent in fiscal 2020. Colleges with endowments worth between $101 million and $1 billion spent 4.6 percent in fiscal 2021, compared with 4.5 percent in fiscal 2020. The smallest endowments—those worth $100 million or less—spent 4.1 percent in fiscal 2021, compared with 4.5 in fiscal 2020.

A large share of this spending—47 percent—pays for financial aid. Another 15 percent goes to academic programs and research, 11 percent is earmarked for endowed faculty positions, and 9 percent pays for campus facilities operations and maintenance, the study found.

Endowment managers typically keep spending rates constant. Managers are more concerned about the five-year, 10-year and 20-year average returns than one-year returns, according to Redd.

"Endowments try to focus on much longer-term trends," Redd said. "One great year is obviously great, and one bad year is obviously not so great, but university endowment managers try not to get too wrapped up in individual years."

For the first time this year, NACUBO asked institutions if they received gifts for their endowments that were earmarked specifically for diversity, equity and inclusion initiatives. More than half—65 percent of respondents—said they received endowment funds for DEI in fiscal 2021, according to the study.

Institutions have also become more transparent about the racial and gender makeup of their endowment managers over the past fiscal year, said Robert Raben, executive director of the Diverse Asset Managers Initiative.

"Harvard, University of California, Duke and Georgetown are very explicitly making moves, reaching out to women and people of color and talking about what they're doing," Raben said.

Only 8 percent of institutions have explicit policies to engage with diverse- and women-owned asset-management firms, Redd said. A few rich institutions have continued to keep the makeup of their endowment managers opaque, according to Raben.

"Stanford and Amherst are miserable about talking about it and really resent having to be put in a position of having a conversation about women and people of color, but are probably making moves," Raben said. "That frequently happens in life—people move on their own terms, and that's fine."

It's too soon to say whether colleges and universities can expect more good news at the end of fiscal year 2022, but it's unlikely to match the high returns they saw in fiscal 2021, according to Redd.

Lately, Redd said, "Financial markets have been very choppy for two reasons: one, inflation. And two: the threat of possible military action between Russia and the Ukraine. We know that the Standard & Poor's 500—which is the major index that most schools follow—in general has been down. So my guess in general is that endowments are also down a little bit this current year, but we'll know more about that when we do our next data collection."

Top 25 Endowments by Value, Fiscal Year 2021 Institution Name FY2021 Endowment Funds (in $1,000s) FY2020 Endowment Funds (in $1,000s) Change in Market Value (Percent) Harvard University 51,900,662 40,575,027 27.9 University of Texas System 42,906,847 31,958,313 34.3

Yale University

42,282,900 31,201,700 35.5 Stanford University 37,800,000 28,948,000 30.6 Trustees of Princeton University 37,697,509 26,558,643 41.9 Massachusetts Institute of Technology 27,527,204 18,495,905 48.8 Trustees of the University of Pennsylvania 20,523,546 14,877,363 38.0 University of Notre Dame 18,074,543 11,962,820 51.1 The Texas A&M University System & Related Foundations 18,028,267 13,594,482 32.6 University of Michigan 17,022,683 12,860,473 32.4 Northwestern University 14,958,441 10,926,510 36.9 Trustees of Columbia University 14,349,970 11,257,021 27.5 Washington University 13,536,003 8,420,497 60.8 Duke University 12,692,472 8,474,071 49.8 Emory University 11,031,029 7,936,988 39.0 Vanderbilt University 10,928,512 6,917,371 58.0 University of Virginia 10,532,651 7,255,701 45.2 Johns Hopkins University 9,315,279 6,750,092 38.0 Dartmouth College 8,484,189 5,975,180 42.0 Rice University 8,061,260 6,163,926 30.8 University of Southern California 8,008,443 5,769,643 38.8 Ohio State University 6,814,413 5,287,131 28.9 Brown University 6,520,175 4,377,466 48.9 University of Pittsburgh 5,647,017 4,172,380 35.3 New York University 5,574,000 4,323,652 28.9

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