Earlier this year, Commonfund, in partnership with the National Association of College and University Business Officers (NACUBO), released the 2023 NACUBO-Commonfund Study of Endowments (NCSE), marking the 50th anniversary of the Endowment Study. The Study examines investment performance, governance and management practices at hundreds of U.S. higher education endowments and related foundations over the July 1, 2022 – June 30, 2023, fiscal year (FY2023).
Following the release of the FY2023 study, Commonfund did a deep dive into results from the 23 participating community colleges. Below is a comparative analysis of these institutions and the 688 total respondents from the full NCSE report. Note: Additional types of schools surveyed in the full report are private colleges and universities, public colleges and universities, institutionally-related foundations (IRFs) and combined endowment/foundations. Detailed analysis of these is included in the full report.
THE TOP-LINE RESULTS
Performance
Returns for all time horizons reported in the Study (1-, 3-, 5-, 10-, 15-, 20-, and 25-years) were positive across both groups for all institution sizes—a sharp reversal from FY2022’s down year. The 23 community colleges participating in this year’s Study reported a 10.4 percent average 1-yr. return vs. 7.7 for the total NCSE respondent’s cohort. Three-, five- and 10-year average returns for community colleges were reported as 7.5, 6.3 and 7.1 percent, respectively, vs. 9.3, 7.0 and 7.2 percent for total NCSE respondents over the same time periods. For longer time horizons. Fifteen-, twenty, and twenty-five-year average returns for community colleges were reported as 5.7, 4.9 and 2.7 percent, respectively, and total NCSE respondent for the same time periods were 6.3, 7.3 and 6.3 percent.
Asset Allocation
The 23 community colleges participating in FY2023 reported an overweight to U.S. equities nearly four times that of the NCSE total respondents (47.2 percent vs. 12.5 percent) cohort. Other areas where community colleges had a significant overweight to asset classes were non-U.S. equities (9.3 percent vs. 5.7 percent) and fixed income (23.6 percent vs. 11.0 percent). Public equities produced returns that were higher than other asset classes in the Study and those who had higher allocations to this asset class typically fared better performance-wise. Notable underweights, compared to total NCSE respondents, were reported by community colleges in marketable alternatives (4.0 percent vs. 15.9 percent), private equity (2.1 percent vs. 17.1 percent), private venture capital (0.5 percent vs. 11.9 percent) and real assets (1.8 percent vs. 11.2 percent).
Spending
Institutions participating in this year’s NCSE reported withdrawing more from their endowments than in FY2022 and the average effective spending rate reported by institutions also increased. Community colleges reported an annual effective spending rate of 4.5 percent vs. 4.7 percent for total NCSE respondents. Looking at spending policy, the most frequently reported spending methodology being used is a percentage of a moving average, 65.2 percent of community colleges reported using this method to determine their annual spending, while 77.1 percent of total NCSE respondents did so. The second most frequently used spending methodology for community colleges was deciding on an appropriate rate or dollar amount each year, reported by 17.4 percent of these institutions, whereas the second most commonly used spending methodology for total NCSE respondents was a weighted average or hybrid method, with 10.1 percent of institutions reporting using that method. Some schools indicated “Other” for their spending methodology - 8.7 percent of community colleges and 10.7 percent of total NCSE respondents.
Gifts
After a noteworthy increase in average new gifts to endowment reported by Study participants in FY2022, this year’s total NCSE respondents reported a reversal. The total gifts reported for community colleges in this year’s Study were $35.0mm, while total gifts to the 688 NCSE respondents were $13.3bn. Community colleges reported receiving average gifts of $1.6mm vs. an average of $20.3mm for total NCSE respondents. As it typically is, the median gift size was below that of the average ($903,000 for community colleges vs. $4.7mm)—a sign that a few outlying institutions received exceptionally large gifts over the course of the fiscal year.
Operating Budget Support
The FY2023 NCSE saw nearly half of total responding institutions (48.2 percent) report an increase in funding from the endowment, while 25.7 percent reported a decrease. Overall, community colleges reported that an average of 11.6 percent of their operating budget was funded from their endowment vs. 10.9 percent of total NCSE respondents.
Responsible Investing Practices
While the adoption of various responsible investing practices has grown in recent years, just under 35 percent of total NCSE respondents reported instituting any responsible investing practices at their institution – that figure is only 4.3 percent at community colleges. This data indicates a leveling off of the incremental increases reported in the past several studies. While data reported by community colleges is limited at this time, we will continue to survey and monitor this segment of the nonprofit sector over the coming studies.
We hope these top line insights will serve as a guidepost for your own analysis into these important topics and we encourage you to read the Study in its entirety to best evaluate your performance vs. your benchmark or peers.
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