Higher Education Endowments Post Strong Returns During the Pandemic but See Inflation as an Emerging Challenge

Student financial aid receives largest portion of endowment spending

WASHINGTON, DC, February 18, 2022 – College and university endowments posted dramatically higher investment returns, asset values, and giving levels in fiscal year 2021 while maintaining their spending rates with a predominant focus on providing financial aid to students.

At the same time, endowment managers raised their long-term return targets to meet increased fees and expenses as well as growing concern about rising inflation, part of the broader macroeconomic fallout from COVID-19. 

Those are among the key findings of the 2021 NACUBO-TIAA Study of Endowments®, the preeminent analysis of the financial, investment, and governance policies and practices of the nation’s higher education endowments and affiliated foundations. This year’s study reflects the responses of 720 institutions representing $821 billion in endowment assets and covers the fiscal year July 1, 2020–June 30, 2021. The average size of endowments in the survey was $1.1 billion, up 35 percent from FY20, and the median endowment was about $200 million. More than half of participating endowments were less than $250 million. 

The survey results suggest that endowment managers foresee inflation as a longer-term issue and that even though FY21 provided exceptional investment returns, endowments will continue to be challenged to meet their return targets going forward. 

“This year’s results reflect strong market performance and good endowment management and more importantly, provide continued financial reliability for support of students, faculty, and academic programs,” said Susan Whealler Johnston, president and CEO of the National Association of College and University Business Officers (NACUBO). 

“Inflation will likely be a concerted focus of asset allocation discussions as endowments strive to maintain portfolio approaches best aligned with their core mission,” said Doug Chittenden, Head of Client Relationships at TIAA.

New Gifting Up 15 Percent

New gifting in FY21 increased significantly, rising 15 percent over FY20, with increases in gifting activity particularly strong among small and medium-sized endowments. 

For the first time, the survey gauged how many respondents received gifts specifically for diversity, equity, and inclusion (DEI) initiatives, such as scholarships, research programs, and endowed chair and faculty funding. Sixty-five percent of respondents reported receiving gifts for DEI purposes. 

“At NACUBO, we are heartened to see donors giving to priorities in areas critical to the mission and future of higher education,” Johnston said. “Increased focus on DEI initiatives is an organizational and sector-wide priority, and we encourage our members to find impactful ways to allocate these gifts now and over the long term.”

All Endowment Cohorts Achieve 20 Percent-Plus Returns; Inflation Expectations Spike

For the 12 months ending June 30, 2021, endowments generated an overall average return of 30.6 percent (net of fees), up sharply from a 1.8 percent overall average return in FY20. 

All endowment size cohorts saw returns greater than 20 percent for FY21. The return gap between the largest endowments (those with more than $1 billion in assets) and the smallest (those with assets of $25 million and below) was more than 13 percentage points.

“Fiscal year 2021 reflects a unique moment in time with exceptional circumstances,” said Chittenden. “Endowments benefited from a broad market recovery from volatility at the pandemic’s onset, but they also see more challenging market conditions ahead and have been adjusting their expectations.” 

Historical data suggest that long-term returns will soon begin trending downward, at a time when inflation and endowment spending needs are moving the opposite way. Endowments generally maintain a historical 7.5 percent target return level, reflecting spending requirements, inflation expectations, and fees and expenses. Return averages for the three-, five- and 10-year time periods exceed that target, but the 15-, 20-, and 25-year return averages all fall below it, and the target also appears to be increasing.

In FY20, the primary components of endowments’ return targets totaled 7.51 percent. However, in FY21, that total jumped to 7.94 percent, driven by large increases in fees and expenses as well as long-term inflation expectations, which rose by 22 basis points in FY21. 

“The increase in the long-term inflation expectation is substantive and noteworthy since endowments and their consultants typically make gradual changes to such long-term assumptions,” said Chittenden. “This kind of shift will inevitably have a long-lasting impact on investment strategies and allocations.”

Gains in Equities, Commodities, High Yield Fixed Income Help Drive Asset Values

During FY21, endowment values benefited from dramatic gains in several asset classes, including publicly traded equities, commodities, and high yield fixed income, all of which produced outsized returns vs. their historical averages. Yet, nearly every asset class in the endowment investment universe had a positive return, with U.S. equities, up 31.5 percent, providing the best returns overall.

Nearly Half of Endowment Spending Funds Student Financial Aid

The average annual effective spending rate reported by endowments was 4.54 percent in FY21, consistent with FY20. Student financial aid received the largest percentage of endowment spending (47 percent). Academic programs and research received 15 percent, endowed faculty positions received 11 percent, and campus facilities’ operation and maintenance received 9 percent. In addition, more than half of endowments increased support for their institution’s operating budget in FY21. 

“Through annual spending, endowments have a tangible impact on students, faculty, academics, and campuses in myriad ways,” NACUBO’s Johnston said. “Strategic management of these funds also ensures endowments will be able to have similar effects on individuals and institutions far into the future.”

Asset Allocations Likely to Shift with Inflation Pressures, Rising Rates

In general, endowments’ asset allocations as of FY21’s close changed only slightly from the previous year. However, since rising interest rates and surging inflation were becoming more prominent around the end of the survey period and in ensuing months, endowments likely will be considering asset allocation adjustments reflecting tightening monetary policy in the U.S. and other key markets. 

Larger endowments, compared with their smaller counterparts, have considerably less exposure to U.S. public equities and much higher allocations to private equity and venture capital. 

Marketable alternatives (primarily hedge funds) made up approximately 17 percent of survey respondents’ portfolios.

Most Endowments Have Incorporated ESG Factors into Investment Policies

Most endowments—more than 80 percent—have added environmental, social, and governance (ESG) factors to their investment policies, as a first step in establishing a responsible investing (RI) approach.

Just 26% of respondents said that they believe an RI approach can be a source of “alpha,” that is, performance in excess of a market return; 39 percent of the largest endowment funds said that it can, versus 16 percent of the smallest endowments. However, these numbers have increased relative to last year’s survey, indicating growing belief in the investment merits of responsible investing. 

Endowments reported meaningful increases in stakeholder interest in RI issues in FY21, including among students. Eleven percent of institutions saw increased student interest in responsible investing compared with FY20, and 6 percent saw increased interest among donors. 

The percentage of endowments reporting that their institution had a formal policy on DEI in investment manager selection increased from 6 percent in FY20 to 8 percent in FY21. Private institutions are more likely to have such a policy.

The study’s previous sponsor, Commonfund, will support NACUBO and TIAA with complementary research. “We are pleased to maintain a role on this annual study, the largest in this country,” said Commonfund President and CEO Catherine Keating. “We look forward to collaborating with NACUBO and TIAA to promote best practices with this important research.”


Founded in 1962, the National Association of College and University Business Officers (NACUBO) is a nonprofit professional organization representing chief administrative and financial officers at more than 1,900 colleges and universities across the country. NACUBO advances the economic vitality, business practices, and support of higher education institutions in pursuit of their missions. For more information, visit www.nacubo.orgOpens in a new window.

About TIAA

TIAA is a leading provider of secure retirements and outcome-focused investment solutions to millions of people and thousands of institutions. It is the #1 not-for-profit retirement market provider1, paid more than $3.6 billion to retired clients in 2020 and has nearly $1.4 trillion in assets under management (as of 12/31/2021).2 For more information, visit tiaa.org


Press contacts:

Katy McCreary
kmccreary@nacubo.orgOpens Email

Vanessa Sussman 
vanessa.sussman@nuveen.comOpens Email

1 As of Dec. 31, 2020. Based on data in PLANSPONSOR’s 403(b) Market Survey, which published in August 2021.

2 As of December 31, 2021 assets under management across Nuveen Investments affiliates and TIAA investment management teams are $1,375 trillion.