Universities in northeast Indiana and across the U.S. made strong returns on financial investments last year, but experts worry increased spending at many schools could wipe out many of the gains.
A survey of more than 800 colleges and universities found that their endowments returned an average of 8.2 percent in fiscal year 2018, down from the previous year's average of 12.2 percent but a major improvement over two sluggish years before that.
Indiana Tech, Huntington University and Manchester University saw their endowments grow last year, along with their endowment market values – which includes investment returns and contributions to or spending from the funds.
Huntington's endowment grew from about $27 million in fiscal year 2017 to more than $28 million last year – a 5.1 percent increase.
“It was an above-average year when looking at historic trends since the financial crash of 2008,” university Vice President for Finance/Treasurer Greg Smitley said in an email. “Since the (Federal Reserve) lowered the rates to near zero, there has been a decade of almost unprecedentedly low interest rates.”
It is not clear whether returns grew or fell in 2018 at Purdue University Fort Wayne.
The Purdue Research Foundation in West Lafayette invests the funds of the Purdue University Fort Wayne Foundation, a nonprofit that manages gifts to the local university.
“Purdue Research Foundation does not announce the PRF or Purdue University investment data,” Cynthia Sequin, a spokeswoman for the organization, said in an email.
University of Saint Francis Vice President for Finance and Operations Rich Bienz declined through a spokesman to provide information on investment data. Saint Francis was not one of the colleges and universities surveyed.
Harvard University remained the wealthiest school in the nation with an endowment valued at more than $38 billion, while the University of Texas system jumped Yale University to take the No. 2 spot with just under $31 billion.
Poor performance by U.S. and international stocks dragged returns down from 2017 rates, but other types of investments fared relatively well, according to the researchers behind the annual study.
Indiana Tech saw a 6.4 percent increase in its endowment market value last year, bringing the fund to about $131 million. Executive Vice President for Finance and Administration Judy Roy said international stocks and a switch of investment managers at the beginning of the fiscal year “caused some degradation in our returns” for 2018.
“We expect that change to improve our results going forward,” she said.
Clair Knapp, Manchester University chief business officer and vice president for finance, echoed Roy's comments. He said the nearly 4 percent increase – its endowment rose to about $62.5 million – was lower than the typical returns of around 7 percent, but he expects the number to rise as long as markets remain stable.
“Endowments on average experienced solid returns in 2018,” said Kevin O'Leary, CEO of TIAA Endowment and Philanthropic Services. He added little changed in the types of investments schools made compared to the year before.
Along with the TIAA, an investment and banking firm based in New York, the study was conducted by the National Association of College and University Business Officers, a Washington group that represents more than 1,900 schools.
Despite the recent success, many colleges are failing to hit their long-term financial goals, the survey found. Schools in the survey aim for a 10-year average return of 7.2 percent, but after 2018 the average moved up to just 5.8 percent. Strong growth in some years has largely been tempered by investment losses in 2009, 2012 and 2016.
Coupled with increased spending, that long-term underperformance could leave schools constrained as they try to serve future generations, said Susan Whealler Johnston, CEO of the college business association.
“We remain concerned, however, that the below-target long-term rates of return will make it harder for colleges and universities to increase spending to support their missions,” she said.
Of the schools surveyed, 66 percent said they dipped further into their endowments to cover annual budgets in 2018. About half of the spending went to student financial aid, while most of the remainder went to academic programs, faculty jobs, campus operations and maintenance.
Johnston said more schools have come to rely on endowments to fill gaps left by lagging education funding in some states.
None of the local universities polled have had to use endowments to cover annual budgets.
The survey notes average spending from endowments among universities was 4.4 percent. Roy, of Indiana Tech, said her university's spending was much less – about 0.9 percent.
Of that, she said, about 70 percent was used for student scholarships and the rest was used to pay for College of Engineering expenses.
“Our lower than average spending is a good thing for Indiana Tech because we are not heavily reliant on our endowment to offset expenses,” Roy said.
Knapp said Manchester University's endowment pays for scholarships, faculty positions, operations and ongoing maintenance.
There are also concerns about whether donations made to schools will continue at past rates. A tax law that took effect in 2018 makes it less advantageous for many people to make donations. Johnston said officials are still trying to determine how colleges have been affected.
Overall, wealthier schools fared better than those with smaller endowments in 2018, largely because they invest less in stocks and more in alternative investments like venture capital, O'Leary said.
But institutions of all types fared far better than the U.S. stock market more broadly. The Standard & Poor's 500 index, a broad measure of the market, ended 2018 down 6.2 percent, while the Dow Jones Industrial Average fell 5.6 percent.
Other than the upturn at the University of Texas system, which saw a jump of 16.4 percent, the list of the wealthiest schools stayed mostly the same. Behind Yale were Stanford and Princeton universities, with more than $25 billion, while the Massachusetts Institute of Technology and the University of Pennsylvania each topped $13 billion.
But the vast majority of endowments were much smaller. More than half of the schools surveyed had endowments of less than $200 million, resulting in an overall median of $140 million.
Huntington, Indiana Tech and Manchester ranked 722, 425 and 594 on the list of universities surveyed, in terms of the size of their endowments.
The Associated Press contributed to this story.