Understanding the NACUBO-Commonfund Study of Endowments

In the world of higher education finance, endowments serve as a critical financial backbone for colleges and universities. These pools of invested funds, often donated by alumni, philanthropists, and institutions themselves, generate returns that support everything from student scholarships to faculty research and campus infrastructure. The NACUBO-Commonfund Study of Endowments (NCSE), an annual benchmark report jointly produced by the National Association of College and University Business Officers (NACUBO) and Commonfund, provides the most comprehensive data on U.S. higher education endowment performance. Released on February 12, 2026, the 2025 edition covers fiscal year 2025 (FY2025), spanning July 1, 2024, to June 30, 2025—a period marked by economic whiplash, including fluctuating interest rates, geopolitical tensions, and the rapid rise of artificial intelligence influencing markets.

Despite these challenges, the study reveals remarkable stability in endowment returns. Average net investment returns stood at 10.9 percent for FY2025, a slight dip from 11.2 percent in FY2024 but still robust double-digit gains. This resilience underscores the sophisticated investment strategies employed by endowment managers, who navigated market volatility through diversified portfolios heavy in equities and private markets. Total endowment assets across 657 participating institutions reached $944.3 billion, up significantly from prior years, with the median endowment size at $253.6 million.

For those unfamiliar, an endowment is a permanent fund where the principal is invested to produce income indefinitely. Universities typically follow spending policies, often around 4-5 percent of the endowment's value annually, smoothed over several years to avoid market timing risks. This structure ensures long-term sustainability, even as short-term markets fluctuate wildly.

Key Performance Highlights 📊

The NCSE data paints a picture of steady performance amid uncertainty. The one-year average return of 10.9 percent reflects broad market strength, particularly in U.S. and global equities, which delivered around 17 percent returns in developed non-U.S. markets. Over the longer term, the 10-year average annualized return improved to 7.7 percent from 6.8 percent previously, signaling healthy compounding growth.

Endowment spending hit a record $33.4 billion, up 11 percent year-over-year, representing 15.2 percent of institutions' operating budgets—up from 14 percent. Nearly half (47.4 percent) went toward student financial aid, making college more accessible amid rising tuition concerns. However, new gifts declined 9.2 percent to under $14 billion, with smaller endowments hit hardest at a 26.5 percent drop.

Performance Variations by Endowment Size

Endowment performance varied notably by size, highlighting economies of scale in investment management. Larger endowments, with access to top private equity and hedge fund managers, outperformed smaller peers.

• Large endowments (>$5 billion): 11.8% average return. These 30 institutions control 58.5 percent of total assets ($552 billion).
• Mid-tier ($101-250 million): 10.5%—the lowest average, possibly due to less diversification.
• Small endowments (<$50 million): 10.7%, showing smaller funds held up well.

This stratification matters for university leaders. Smaller liberal arts colleges and community colleges, reliant on endowments for stability, benefited from broad market gains despite limited resources. For aspiring academics eyeing higher education jobs, institutions with growing endowments signal potential for expanded programs and hiring.

Factors Driving Stability Amid Volatility

FY2025 markets were turbulent: U.S. Federal Reserve rate cuts sparked bond rallies, while AI hype propelled tech stocks, but trade tensions and election uncertainties loomed. Mark Anson, Commonfund CEO, noted, “We had a strong U.S. economy, positive employment data, moderated inflation... AI continued to push equity markets higher.”

Endowments' diversification—typically 50-60 percent alternatives like private equity (20-30 percent), real estate, and hedge funds—mitigated risks. Public equities (15-20 percent) and fixed income (10-15 percent) provided balance. Venture capital eked out small gains post-pandemic slumps.

In practical terms, this means endowment committees, often comprising trustees and chief investment officers, adjust allocations yearly based on economic forecasts. Actionable advice for CIOs: Maintain 20-25 percent in illiquid alternatives for alpha generation, but ensure liquidity for spending needs.

Endowment Spending: Fueling Missions

Spending policies averaged 4.9 percent of endowment value, up slightly from 4.8 percent. This funds core missions:

• Student aid (47.4%): Scholarships reducing net tuition costs.
• Academic programs and research (25-30%): Hiring faculty, labs.
• Faculty support and facilities (20%): Salaries, endowments chairs.

NACUBO's Kara Freeman emphasized, “Endowments make college possible and more affordable.” For example, at a median-sized endowment, $12.4 million in annual spending could cover 100 full scholarships at $100,000 each including room and board.

Professionals in professor salaries and administration benefit as endowments buffer enrollment dips or state funding cuts.

Emerging Challenges and Headwinds

Despite gains, headwinds loom. New gifts fell sharply, straining growth. Policy risks include the One Big Beautiful Bill Act's 8 percent per-student tax on large endowments—Yale anticipates $300 million annually, prompting cuts. Trump-era federal research restrictions exacerbate pressures, leading to layoffs and program axing.

Smaller institutions face acute risks; their 26.5 percent gift drop amplifies volatility. Strategies: Enhance donor stewardship via alumni events, transparent impact reporting.

Spotlight on Leading Institutions 🎓

Harvard's endowment swelled to $55.7 billion, maintaining top spot. Yale ($44.1B), Stanford ($40.8B), Princeton ($36.4B) followed. MIT gained 11.4 percent to $27.4 billion; Duke 3.6 percent to $12.3 billion.

These Ivy League powerhouses exemplify the "Yale Model"—heavy alternatives yielding superior returns. For global talent, check Ivy League schools opportunities via faculty positions.

Implications for Higher Education and Careers

Stable endowments signal resilience, supporting jobs amid sector turbulence. Universities with strong funds invest in AI research, sustainability—key growth areas. Job seekers: Target endowed institutions for stability; use higher ed career advice for resumes.

Students: Endowments lower costs; rate experiences at Rate My Professor.

Photo by Roman Kraft on Unsplash

Looking Ahead: Strategies for Sustainability

Future success hinges on adaptive governance, ESG integration, AI-driven analytics. Diversify into emerging markets, maintain discipline. For admins, endowments ensure mission delivery despite volatility.

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