According to Treasurer Peter Shea, several factors contributed to the impressive increase. "[These endowment figures] reflect a combination of factors including a return on investment, additional gifts, as well as the spending out of the endowment," said Shea.
Shea, however, singled out the most significant factor that directly influenced the rise in funding. "The most significant factor in the 16.2 percent year-to-year increase was the 19.3 percent investment return earned in that period by the endowment," he said. "Other factors were the gifts added to the endowment offset by the spending out of the endowment in order to support the operating budget of the College."
The National Association of College and University Business Officers (NACUBO), an organization that conducts surveys and compiles financial data on the performance of college endowments, has recently released its data concerning percent changes in college endowment funds in 2004-2005. Amherst's strong endowment performance was revealed in the data and the College's endowment was ranked 46th nationally in the fiscal year 2004-2005. Not surprisingly, Harvard University remained the nation's wealthiest institution, with an endowment of $25.5 billion. Yale University followed with funds totaling $15.2 billion.
According to the NACUBO's data, the 56 colleges with more than $1 billion in endowment funds earned an average return of 13.8 percent, while colleges with endowments of less than $25 million earned under nine percent. Shea echoed the published reports. "The College's investment return, the most significant factor in the increase for the last year, was among the highest in the country," said Shea.
According to The Chronicle of Philanthropy, last year's endowment investment returns for American colleges and universities exceeded those of the major stock market indexes for 2005. American colleges and universities' average spending rates declined for the fourth consecutive year from 4.8 percent to 4.6 percent.
The Commonfund Institute in Windsor, Conn., which manages approximately $29 billion in assets for more than 1,600 non-profit organizations, recently released a study, explaining that the average investment return for endowments was 9.7 percent in 2005. This statistic is based on 729 education institutions, primarily public and private universities but also independent schools and private education foundations. The study explained that this percentage is down from the 14.7 percent average increase colleges achieved in 2004, but is still the second-best performance in the past five years. Holdings of domestic stock dropped from 31 percent to 28 percent.
Executive Director of the Commonfund Institute John S. Griswold stated that the endowments' good performance was due to the increasing number of colleges that hired professional investment managers, who diversified the institutions' holdings into a range of alternatives, according to The Chronicle of Philanthropy. Many institutions have also established investment committees, often made up of financial experts recruited from alumni, parents and sometimes current students.
Griswold also explained that the health and size of a college's endowment is an important indicator of the financial stability and long-term focus of an institution.
According to Shea, proceeds from the endowment fund are instrumental in supporting the College's operating budget. "The endowment is used to help support the operating budget of the College as well as to make the payments on the College's outstanding debt. It provides approximately 30 percent of the operating budget," said Shea.
The Chronicle of Higher Education's survey of 741 colleges and universities shows that endowment growth from additional gifts averaged 5.4 percent last year. The average dollar amount of total new gifts to the endowment funds at these institutions was $7.9 million. Annual donations to colleges funded an average of 7.5 percent of their operating budget, up from 7.3 percent from the previous year.
According to the study released by the Commonfund Institute, colleges and universities are expecting lower returns both next year and over the next three years. The average expected return for the 2006 fiscal year is eight percent, while the average expectation for the next three years is 8.3 percent.