University endowments raise returns

Budget cuts are handicapping universities nationwide, but a study of the 2014 fiscal year shows some post-recession growth.

Commonfund, an investment management practice with clients in the United States and Canada, and the National Association of College and University Business Officers found in a preliminary study of 2014 that endowments have received double-digit return rates — meaning universities are collecting money on their investments.

Endowments are university investments made to promote growth and ensure that schools have a steady income.

The study, to be fully published in January 2015, will eventually include more than 800 public and private colleges and universities and foundations that support university research.

Kenneth Redd, director of research and policy analysis at NACUBO, said the organization’s joint study shows that 2014 endowment rates have bounced back from the recession.

The study recorded a 15.8 percent average return rate in 2014, while UNC saw an endowment return of 12.1 percent in 2013.

UNC’s endowment fell short of its five-year goal while exceeding its 10-year standard with a 9.2 percent return rate.

Still, UNC outperformed the 11.6 percent median rate of other universities in a peer group called the Cambridge Associates.

Michael Jacobs, professor of finance at UNC Kenan-Flagler Business School, said investment management requires consistently high-performing return rates.

“Looking at just one year (of data) can be very deceptive,” he said.

Jacobs said for instance, the N.C. pension fund, which heavily invests in bonds, might appear to be suffering when interest rates rise. Because of these fluctuations, there should be a measure of comparison, he said.

William Jarvis, managing director of Commonfund, said 2014’s results will be compared to data collected since 2002.

“The purpose of the report (preview) is to educate not only the participants themselves — so you can compare and contrast to peer institutions — but also to educate policymakers and the public about what’s going on with endowments,” he said.

Jarvis said many universities are turning to alternative, riskier strategies to diversify their investment portfolios.

“Educational endowments were, in fact, the leaders in investing in these so-called alternative investments,” he said. “If you have many eggs in many baskets, you have more sources of returns.”

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