North American university endowment investments lost an average of 8 per cent in their most recent fiscal year, with the heaviest declines among the smallest portfolios, an annual survey has found.

The market declines come a year after soaring gains of 31 per cent, but a 22 per cent rise in gifts to universities helped to alleviate some of the damage. Data compiled by the National Association of College and University Business Officers (Nacubo) and the insurance company TIAA shows that, in the fiscal year ended June 2022, the total loss of net endowment was 4 per cent.

“Across most institutions,” said Jill Popovich, a senior managing director at TIAA, in releasing the data, “strong gifting activity partially offset the loss in value caused by the market downturn.”

Universities also relied more on their portfolios. The 678 institutions participating in this year’s annual Nacubo-TIAA study hold endowments with a total market value of $807 billion (£670 billion), and they reported spending nearly $26 billion of that money in fiscal 2022, up from nearly $24 billion the previous year.

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The largest share of that spending was devoted to providing student financial aid, the Nacubo-TIAA report said. The annual numbers might nevertheless bolster questions about the overall role of higher education endowments in improving societal equity. More than half the 678 endowments participating in the Nacubo-TIAA study – overwhelmingly in the US, with a few in Canada – held less than a third of the $807 billion, while the 136 institutions with more than $1 billion apiece in assets held 84 per cent of the total value.

The biggest university endowments lost only 3.8 per cent of their overall wealth over the fiscal year, while Nacubo-TIAA’s three smallest-by-value groupings lost an average of 9.6 per cent. That disparity largely reflects the greater ability of the bigger endowments to find preferable investing options, while smaller endowments “tend to allocate far more to public equities and public fixed income”, Nacubo-TIAA said in its report.

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Harvard University has long held the distinction of owning the world’s largest university endowment, and it remains at the top of the Nacubo-TIAA listing, though with its lead continuing to narrow. At the June measurement point, Harvard’s endowment totalled $49.4 billion, down 4.7 per cent from a year earlier, while the second-placed University of Texas system had $42.7 billion, down only 0.6 per cent. Third on the Nacubo-TIAA list is Yale University, at $41.4 billion, after a 2.1 per cent loss.

The University of Texas has been gaining on Harvard in large part because it amasses billions of dollars in annual fossil fuel production from oil-rich lands that it owns in the state. Harvard, meanwhile, announced in September – after by students, faculty and alumni – that it would rid itself of such investments.

Harvard, however, said that it would carry out that divestment process by letting such investments “expire” over time. And it acknowledged that in fiscal year 2022, its fossil fuel investments rose, as an overall share of its endowment, to more than 2 per cent, from less than 2 per cent a year earlier.

The university said the relative increase was due to a sharp rise in energy prices around the world. Harvard officials declined to say when their endowment would be free of fossil fuel investments, though they said such allocations would be exceeded by their endowment’s investments in “climate-transition solutions” within “the next few years”.

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A nationwide student group that is pushing for divestment, the Fossil Free 5 campaign, said it often sees backsliding after written commitments to divest. “Many of our universities have already proved themselves to be expert greenwashers – they tout carbon offsets and green buildings while ignoring calls for fossil fuel divestment and systematic change,” the group said in response to Harvard’s still-growing share of oil profits.

And the Nacubo-TIAA survey data showed that only 18 per cent of the colleges and universities meet responsible investing criteria, with another 18 per cent considering a so-called RI component. Fear of losing money was the most commonly cited reason for not trying, said Ivy Wong Flores, a managing director at TIAA subsidiary Nuveen. Representatives of nearly two-thirds of the endowments “said they are uncertain as to whether RI represents a source of alpha”, Ms Flores said, using a term referring to the concept of outperforming the market average.

That attitude seems hard to justify, especially at wealthier institutions, said Jennifer Bird-Pollan, a professor of law at the University of Kentucky who studies endowments. “Growth at any cost is probably the message that an investment adviser is giving them,” Professor Bird-Pollan said of the leadership at places such as Harvard. “And one of the advantages Harvard has, by being Harvard, is that they don’t have to pursue that investment strategy – I mean, they just don’t have to.”

Higher education leaders – including Nacubo and Harvard – have argued strenuously against a 2017 federal law that imposed an excise tax on high-value university endowments, calling it a dangerous attack on the tax-exempt status of education. Professor Bird-Pollan has argued in analyses that the tax has its drawbacks but might at least force universities to think harder about the purpose of their endowments.

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paul.basken@timeshighereducation.com