Despite a recent national decline in college endowments, a survey conducted by the National Association of College and University Business Officers and Commonfund revealed that universities such as Boston University have experienced an increase in returns on investments in the past year, officials said.
Director of Research and Policy Analysis at NACUBO Ken Redd said the study evaluated a university’s investment rates of returns, asset allocations and endowment spending rates.
“This year’s positive returns are very encouraging for institutions because universities use earnings from their endowments to fund student financial aid, faculty research, campus maintenance and a variety of other projects,” Redd said.
The preliminary study, released Wednesday, was based on 461 institutions, but NACUBO expects about double this amount of universities and colleges to participate in the official study, he said.
The initial results show that, on average, universities had a positive investment return of 11.7 percent in the 2012-13 academic year compared to the previous year, when endowments had a negative return at -0.3 percent return.
Redd said the dramatic increase in universities’ returns can be attributed to the improved financial market.
“The U.S. stock market over the last year or so, as measured by the standard in Forbes 500, is up by about 20.6 percent,” Redd said. “… The foreign markets, not quite as much, but there have been improvements in overseas investment returns as well. So those two factors, the increase in the U.S. stock markets and the improvements in the international stock markets, have been able to propel endowments forward.”
This positive return on endowments is particularly beneficial for large universities, such as BU, which have endowments over half a billion dollars, Redd said.
Redd said the increased endowments are often used to support campus-based financial aid programs, such as grants, scholarships and fellowships. Faculties at such universities could also reap benefits.
“Faculty research endowment shares definitely pay for a good portion of faculty research, so again, that benefits students as well, because faculty doing more cutting-edge research tends to benefit graduate students who are often hired as research assistants and those kinds of things,” Redd said.
BU economics professor Kevin Lang said rises in endowment rates become more significant as they accumulate over time.
“You should take into account that a place like BU where you have a roughly $2 billion budget, you have … in very round numbers, a $1 billion endowment,” Lang said.
However, the increase likely would not make significant changes to operations at BU, Lang said.
“An extra one percent increases the endowment by about $10 million, and that, over some period of time, translates into an addition $400,000 of annual spending on a $2 billion budget. You can guess that it’s not going to make a dramatic transformation to have an extra one percent or even two or three percent in a single year.”
These endowments are vital to a large university’s ability to function, said economics professor Michael Manove.
“Tuitions are already very high,” Manove said. “Along with grants, they don’t really cover the cost of education, so they [colleges and universities] need endowments, especially at research universities where research is pretty expensive.”
A research university, such as BU, requires a hefty endowment in order to sustain a steady tuition rate, Manove said. Such endowments are also necessary for employing a faculty as large as BU’s.
“BU’s endowments are still pretty small,” Manove said. “…We’re trying to make them bigger, at least that’s my impression, and probably the greatest impact is our ability to forestall tuition increases. The alternative is to have a lower faculty-to-student ratio and that wouldn’t be good for anyone.”
The study’s general findings are good news for both students and faculties at institutions such as BU, Manove said.
“Obviously, a university that has more money can use it in a variety of ways, from increasing financial aid, to supporting research to hiring additional faculty,” he said.
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