When it comes to managing endowments at institutions of higher education and trying to acquire good returns on investments, the task is fraught with unpredictability.
“No one can predict market changes reliably, and attempts to time the market have been repeatedly shown to fail,” advises a guide on investment management principles issued by the Commonfund Institute, a Connecticut-based asset management firm that seeks to educate institutional investors on current best practices.
The ups and downs can be quite dramatic, as evidenced in a recent NACUBO-Commonfund study that found institutions’ endowments returned an average of 2.4 percent — after fees — for the 2015 fiscal year, compared to 15.5 percent for the prior fiscal year.
But as challenging as the work of endowment management is inherently, the job is becoming more difficult due to different external forces that will demand considerable attention, skill and responsiveness for the foreseeable future.
For instance, on Capitol Hill, policymakers are exploring ways to address concerns that wealthy colleges and universities are “hoarding” money — as one law professor put it recently in The New York Times — through their endowments and not spending enough on student aid.
While proposed changes — such as imposing minimal payout rates of 5 percent and taxing endowments or endowment earnings — are aimed at wealthy institutions, observers say those proposed changes could potentially impact other colleges and universities as well.
Further, as institutions seek to create more diverse campus environments, endowments meant to benefit specific groups could face legal challenges from individuals who — in the same vein as the affirmative action case Fisher v. University of Texas at Austin — object to such things as being illegally exclusionary, experts warn.
