Insights from the 2025 NACUBO-Commonfund Study of Endowments 

The average overall return was 10.9%, with only 130 basis points of performance dispersion separating the best and worst performers, according to this year’s National Association of College and University Business Officers (NACUBO) survey. Notably, no asset class posted a negative return.

The report, which is in its 52^nd year, surveyed 657 private and public colleges and universities and associated foundations across the US.

The study found that despite volatile markets, endowments benefited from strong public equity market returns — especially smaller institutions with higher allocations to equities — as the MSCI ACWI index returned 16.2% for the year. Returns for marketable alternatives (hedge funds) and fixed income also improved versus recent years. Manager selection overall and allocations within some non-public asset classes helped the largest institutions outperform average participants.

Endowments benefited from supportive capital markets and strong governance in FY25. Recent annualized results have been notably resilient, underpinned in large part by robust public equity performance over the past three years. That said, these figures are sensitive to the start and end points of the measurement window. FY22, for example, delivered a return of -8.0%, which pulled the four-year annualized average down to 5.5%.

Return targets remain demanding. Across the E&Fs surveyed, 31% of respondents reported targeting nominal returns, which averaged 7.3%, with the largest institutions targeting an average return of 8.1%.  Another 39% target a real return above inflation, with the average target set at inflation plus 4.9% in FY25, intended to preserve long-term purchasing power.

Spending policies reinforce the challenge. Over the past 25 years, average spending rates have been about 4.5%. Over the same period, inflation measures such as HEPI averaged 3.3%, implying a combined “hurdle rate” of roughly 7.8% to sustain both distributions and real value over time. Larger institutions have generally been more successful in clearing this bar, reflecting the advantages of scale in portfolio construction, access, and implementation.

In FY25, endowments maintained a strong growth-oriented posture. On average, 86% of assets were allocated to equities and equity-like strategies, including hedge funds, with the remaining 14% in fixed income and other categories. For many institutions, sustaining return objectives above 7% has meant keeping equity exposure high.

Implementation, however, differs by size. Larger endowments have tended to express that equity risk through private equity and venture capital, while smaller institutions have relied more heavily on traditional long-only public equities. This longstanding difference springs from varying risk profiles, investment strategies, and liquidity requirements. Larger schools invest more in illiquid and less-liquid asset classes, which has historically reduced volatility and help to enhance long-term returns.

Top concerns vary by institution size, and in some cases can constrain the ability to commit to illiquid alternatives. Smaller institutions are most focused on enrollment and fundraising pressures, which for many have translated into operational strain, and in extreme cases have led to mergers or closures.

Larger institutions, by contrast, are more concerned about potential reductions in federal grants and contracts. Liquidity is often their next key issue, reflecting a combination of funding uncertainty and higher allocations to illiquid assets. In FY25, many large institutions turned to the credit markets to bolster liquidity buffers amid policy and market uncertainty.

The effective spending rate among the respondents edged up to 4.9% in FY25 from 4.8% in FY24, while total spending distributions rose 10.9% to $33.4 billion. Most institutions continue to rely on a moving average market value rule, with an average policy spending rate of 4.6%, although some use hybrid approaches that incorporate inflation adjustments and can lift spending in certain environments. Beyond routine policy draws, special appropriations accounted for 5.3% of total distributions, and other withdrawals contributed a further 5.1%.

Endowment support also increased as a share of institutional finances. On average, endowment draws funded 15.2% of operating budgets in FY25, up from 14.0% in FY24, while median budgetary support held steady at 6.1%. For many institutions, the endowment is an increasingly important and, in some cases, indispensable source of revenue.

Gifts to endowments fell 9.2% from FY24, even as median gifts rose 2.5% year over year. Taken together, that points to a softer year for large, headline gifts, with giving supported by a broader base of smaller contributions. Endowment gifts remain critical, both for expanding the long-term investment pool and for providing a source of discretionary liquidity.

Looking ahead, changes introduced under the 2025 One Big Beautiful Bill Act could reshape the tax incentives around charitable giving beginning in 2026, including a new above the line deduction for some non-itemizers, alongside new limits that may reduce the tax benefit of giving for higher earners. These shifts could further tilt the mix away from major gifts and toward smaller ones, depending on donor profiles and how institutions structure campaigns.

In a challenging operational year for colleges and universities, endowments were a bright spot, delivering above-target returns and providing crucial support when needed most. While the favorable return environment is unlikely to be permanent, E&Fs continue to represent one of the market’s most durable pools of patient capital, with structurally high allocations to private markets that reflect long time horizons and a willingness to be illiquid in pursuit of long-term returns and diversification.

That opportunity comes with a higher bar for implementation. To the extent that public equity markets decline, outcomes will hinge less on a supportive beta backdrop and more on getting the fundamentals right, including a disciplined and diversified strategic asset allocation, a spending policy aligned to objectives and liquidity needs, and thoughtful private markets pacing. Manager selection, fee efficiency, and a governance model that supports timely decision-making and effective oversight will remain central to sustaining results.