The University of Illinois posted an enormous endowment return of 34% at the close of fiscal year 2021, bringing its total endowment to a record $3.82 billion as colleges nationwide celebrate similar successes thanks to a booming stock market.
That reverses several years of poor performance by the endowment, which shrunk by 1.1% last year and gained only 2.8% in fiscal year 2019, according to a university spokeswoman. The total endowment is composed of two distinct funds: one for the U of I system, which stands at $1.13 billion, and one for the U of I Foundation, a private nonprofit that manages the bulk of the money.
Ned Creedon, the foundation’s interim chief investment officer, called this year’s results “fantastic” but said the goal is to replicate the success.
“It’s about stringing together a number of years like this,” he said. “Our focus is more on generating those five-to-ten-year returns . . . .It was truly an exceptional year for many institutions, so I certainly wouldn’t expect it next year.”
Indeed, other schools boasted even greater returns after taking a hit during the early months of the pandemic. On the highest end, Washington University in St. Louis saw its endowment surge by 65% to $15.3 billion, and Duke reported returns of 56%, ballooning its endowment to $12.7 billion. As for other public institutions, the University of Minnesota recorded a 38.7% gain while the University of California saw returns spike by 33.7% in its largest ever one-year jump.
Experts have singled out venture-capital investments as a key driver of behind the growth, saying wealthier schools with more assets benefited from being able to make riskier bets on venture-backed startups. But that’s not the story at U of I.
Creedon said U of I’s private-equity portfolio, which includes venture, makes up just 12% of the strategy and is a relatively new undertaking that launched in 2014. Creedon said there are plans to potentially build on those investment and set higher benchmarks but declined to share those targets. Only 2% of the school’s investments lie in venture capital.
Since much of university endowments are restricted for specific purposes or programs and their financial planning is longer term, the influx of cash won’t cause universities to significantly adjust budgets immediately. Universities typically spend a low single-digit percentage of their endowments for operating costs, said Jeff Martin, a senior director at the Washington DC-based education research and consulting firm EAB.
But the surplus could provide schools a little more breathing room next year as they crunch the numbers after receiving millions in federal aid during the pandemic, Martin said.
“It’s likely we won’t be seeing that same federally-driven revenue infusion again, so the fact that we will be seeing more flexible operating dollars coming from greatly expanded endowment assets could help mute the shock or the whiplash,” he said.