Universities and colleges from across the country gathered earlier this year at the NACUBO Endowment & Debt Management Forum. This popular annual event has been going strong for decades and features the results of NACUBO's annual survey of 800+ colleges and universities on higher-education-related topics. 

We were proud to participate in this annual conference. This year, we presented with Kent State University's CFO, Mark Polatajko, on the use of alternative investments in long term asset pools. If you'd like more information about the presentation, please contact me.

I’ve pulled together some highlights and my key takeaways from this year’s event. All data is from the NACUBO conference, unless indicated otherwise.

A focus on governance

Investment and finance committees are looking long-term, focused more on strategic initiatives and less on quarter-to-quarter performance. This makes appropriate planning and preparation a strategic imperative. In fact, committees are requiring meeting materials more than a week in advance. Sessions emphasized the importance of a having strong investment policy statement (IPS) to document the long-term investment plan and provide guidance for consistent, informed decision-making. 

There were several sessions about investment committee best practices. For the committee, preparation, engagement and training/education are key. Takeaways from at the governance sessions:

  • Committees need to do more analysis on future spending rates, due to lower expected returns in the next decade
  • It’s important to perform self-assessments in order to maintain a solid governance process
  • A focus on tactical moves is needed to adapt to quickly changing markets
  • A focus on portfolio construction includes considering various implementation strategy (i.e. OCIO, traditional, separate accounts) and setting the appropriate asset allocation and liquidity profile
  • More risk management oversight and attribution information is needed to monitor asset management effectively (most organizations monitored performance from a 5-year track record or less)
  • It’s critical to document process, roles, minutes and policies
  • Because face time among the committee is so limited, annual retreats were recommended

Challenges facing higher ed

Long term debt has more than doubled the past 10 years, from $10.4 billion TO $24 billion, as increased competition and race for enrollment means more capital improvements and program enhancements. But parents are footing most of the bill, as state appropriations for public institutions continue to be less than a decade ago, and fundraising is earmarked mostly for scholarships to attract higher-quality students. Demographics of students attending college was discussed, as the high school graduate age population is also expected to slowly decline from current levels.

Tax considerations

Legislative and regulatory developments were part of the discussion. The additional excise tax on highly compensated and extremely large endowments is a popular topic among many institutions. The separation of Unrelated Business Taxable Income (UBTI) — the change that requires non-aggregation of unrelated business — was discussed, as well. 

Liquidity profiles

Washington and Lee University and Moody’s jointly presented on liquidity profiles. In this case study presentation, they discussed how they changed their debt profile, the impact of private commitments and their cash management process. They outlined ideas around a liquid investment portfolio and mandatory cash positions in conjunction with a line of credit.


The unveiling of the 2018 NACUBO-TIIA Study of Endowments showed 10-year returns averaged 5.8% (ranged 5.6-6.1, depending on size), which was well below the average long term hurdle of 7.2%. That includes spending (ranged 4.2%-4.4%) plus inflation and fees. Over the past decade, there has never been a 10-year average that exceeds the long term return objective. Relatively low inflation has helped, but Higher Ed Price Index runs about 1-2% higher than CPI, although most organizations use CPI. Once 2008/2009 drops off, the numbers will change dramatically (FY 09 average was -19%).

The biggest allocation movement in past 10 years has been out of U.S. and into international (18% to 16%, and 14% to 20%), and further reductions in fixed income (13% to 8%). 

Alternatives average has moved from 51% to 53%. Venture capital (VC) access is higher at larger sized endowments. We see private equity (PE) and VC returns increase as the endowment size is larger.

Keep in mind that the stats reported at the conference were dollar weighted averages of all size cohorts. There is much allocation disparity among endowment sizes, as reflected in the full NACUBO report. 

The average return for FY18 was 8.2%, driven by U.S. equity and alternatives. Endowment spending was used primarily for student aid (49%), followed distantly by academic programs (16%) and faculty positions (10%).  Socially responsible investing continued to be implemented by 20% of endowments, about the same used negative screening that used positive. Impact investing was used by 15% of larger endowments (>$1 billion). Of that, 12% were between $100-$250 million.

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You face a continually changing and challenging market environment. Working with an established nonprofit team can help keep your investment committee aware of the latest trends and changes.

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