High Returns for Peer Schools May Bode Well for BC’s Endowment

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While Boston College’s endowment returns will be released Oct. 1, several other universities have already released theirs for fiscal year 2017, including Harvard University, the Massachusetts Institute of Technology (MIT), and the University of Virginia.

BC had a 7.5 percent return on its endowment in fiscal 2015, but in fiscal 2016, its returns were negative 4.3 percent. The University’s net assets decreased by $67 million. Gross plant assets increased in excess of $186 million with the construction of the 2150 Comm. Ave, the renovation of 2000 Comm. Ave, and the renovation of the McMullen Museum of Art. Revenue grew at 4 percent, and financial aid funds increased by 5 percent. All told, BC’s endowment fund decreased by $150 million to $2.2 billion.

Endowment net returns for colleges and universities dropped by 1.9 percent in 2016. This statistic is much lower than the 7.4 percent median annual return endowments need to maintain their purchasing power over time. Universities with endowment assets of over $1 billion funded an average of 15.9 percent of their operating budgets from their returns.

The drop in the value of university endowments can be contributed to a period in which colleges increased spending, chipping away at the endowment.

“In spite of lower returns, colleges and universities continue to raise their endowment spending dollars to fund student financial aid, research, and other vital programs,” John Walda, president and CEO of the National Association of College and University Business Officers, said to 247wallst.com.

Harvard University had a negative 2 percent return on its endowment in 2016. Robert Ettl, the former head of the Harvard Management Company (HMC), a subsidiary of the university which manages its investments, said the poor performance had been triggered by low interest rates and market volatility.

HMC returned 8.1 percent on its investments in fiscal year 2017. HMC’s CEO H.P. Narvekar described the returns for fiscal year 2017 as “disappointing,” as Harvard has one of the lowest returns out of the institutional investors who have released their returns for fiscal year 2017. Harvard’s endowment, the largest of any university in the world, now stands at $37.1 billion.

MIT returned 14.3 percent on its investments for 2017. Its endowment at the end of the fiscal year was $14.8 billion, excluding pledges. MIT received a 0.8 percent return on investment in fiscal 2016, with an endowment of $13.2 billion.

The University of California received a 15.1 percent return on its investments, topping its benchmark of 12.2 percent. Dartmouth College had a 14.6 percent return. The University of Virginia had a 12.4 percent return.

Many other universities had double-digit returns for fiscal year 2017. Ohio State University had a 14.46 percent return, the University of Iowa had a net 10.3 percent return, and the University of Texas had a 13.4 percent return.

In 2015, BC implemented a performance-based compensation plan for its investment office, a method of compensation many other large universities use. Chief Investment Officer John Zona received a $1.1 million pay package in 2015, which included a $550,00 salary, a $266,200 bonus, and $242,700 in deferred compensation. His pay package was doubled from the previous year.

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Chris is the associate news editor for The Heights. He is from Manhattan, N.Y. and can talk about his love for New York City for hours. You can follow him on Twitter @chris_heights.