Inflation and geopolitical disruptions caused endowment returns to fall by 8% in fiscal year 2022, according to an annual study released last week by the National Association of College and University Business Officers (NACUBO) and the Teachers Insurance and Annuity Association of America (TIAA). The decline comes after a spectacular performance in fiscal year 2021, when endowment returns increased by 30.6% on average.
“The 2022 fiscal year was truly a tale of two markets, with positive economic tailwinds driving equities higher through December 2021, followed by a crushing combination of inflationary pressures and other factors that forced most major investment indices down sharply by the year’s close,” said Jill Popovich, senior managing director and regional general manager at TIAA.
The study is based on data from 678 institutions holding endowment assets with a market value of $807 billion. Although the data represents only about 20% of non-profit colleges and universities, those institutions own about 99% of the endowment wealth in higher education, according to calculations by Dr. Sarah M. Iler, assistant director of institutional research at the University of North Carolina School of the Arts, and Dr. Bruce A. Kimball, professor emeritus of educational studies at the Ohio State University. The average size of the endowments in the survey was $1.2 billion and the median was approximately $203.4 million. Over half of the endowments were less than $250 million. 
Although endowments of all size categories dropped, large endowments performed notably better than small ones. Endowments with over $1 billion in assets had an average return of -4.5%, while those with under $25 million lost 11.5%. NACUBO and TIAA attributed the disparity to differences in allocation strategies. Schools with smaller endowments are more likely to put money into public equities and public fixed income investments, which struggled in fiscal year 2022, whereas larger endowments were likelier to have been invested in private markets, which did better.
“The shift from public equities toward private equity and venture capital reflects the willingness and ability of larger institutions to reach for higher return targets,” said Popovich. “Smaller endowments may not be able to pursue such an approach due to greater fee sensitivity, lower risk tolerance, and different liquidity requirements, among other factors.”
