Three-quarters of college and university endowments increased spending to support their mission – by an average 8.1 percent – last year following another weak year for investments returns.

Returns for college and university endowments averaged -1.9 percent for the fiscal year ending in June, compared with an average 2.4 percent in 2015. The negative return dragged 10-year returns to 5 percent, down from 6.3 percent in 2015.

The 2016 NACUBO-Commonfund Study of Endowments (NCSE) gathered data from 805 colleges and universities in the United States, representing endowment assets of $515 billion. The average endowment in the study was about $640 billion, with about half of those surveyed with endowments of $100 million or less.

The long-term returns are less than the average 7.4 percent that most institutions report they need to earn to maintain their endowments’ purchasing power after spending, inflation, and investment management costs. All returns reported are net of fees.

“This year’s results are cause for concern. Continued below-average investment returns will undoubtedly make it much more difficult for colleges and universities to support their missions in the future,” National Association of College and University Business Officers (NACUBO) President and CEO John D. Wada said in a press release announcing the survey results.

Institutions are responding to lower investments results by adjusting average return expectations, which “had become unrealistically high,” said William Jarvis, executive director of the Commonfund Institute. “At the governance level, the duty of board sand investment committees to balance current and longer-term demands, which is fundamental to the goal of maintaining equity among present and future generations of students, will be even more important in the next few years,” he said.

More than 80 percent of those with endowments of more than $500 million reported increasing spending dollars while 62 percent of the smallest institutions, those with assets of less than $25 million, reported spending increases. The largest average increase was 12.8 percent, among endowments with assets of $25 million to $50 million.

Average returns were negative for endowments regardless of their size. The best return was -1.0 percent among the smallest institutions, those with assets of less than $25 million, while the lowest average return was -2.4 percent, among those with assets of $101 million to $500 million. One reason behind the higher returns for smaller endowment was their larger 24 percent allocation to fixed income, the year’s highest-performing asset class, according to the study. Institutions with more than $1 billion, reported average fixed income allocation of just 7 percent, thus the -1.9 percent average.

Net returns over the longer term were still 5 percent or better, with no less than 4.7 percent regardless of endowment size. The average 3-year net return was 5.4 percent, down from almost 10 percent a year ago because of the elimination of 11.7 percent return in 2013. The average 5-year return was 5.2 percent. Five-year returns dropped from 9.8 percent in 2015 because of the elimination of 19.2 percent returns in 2011.

The best returns last year came from fixed income, 3.6 percent, up from 0.2 percent in 2015. Short-term securities/cash/other also was on the positive side, barely, at 0.2 percent, up from 0.0 percent in the previous year.

Three categories reported negative average returns:

• U.S. equities, -0.2 percent, compared with 6.4 percent in 2015;
• Non-U.S. equities, -7.8 percent versus -2.1 percent in 2015;
• Alternative strategies, -1.4 percent compared with 1.1 percent in 2015.

With alternative investments, the highest return came in private equity real estate, at 7.1 percent, down from 9.9 percent a year ago. Private equity returned 4.5 percent, down from 9.3 percent, and venture capital declined from 15.1 percent in 2015 to 1.5 percent last year.

Returns for other alternative strategies were negative, despite improving from 2015. Commodities and managed futures returned -7.7 percent, up from -17.7 percent in the prior year, and energy and natural resources, -7.5 percent, up from -13.3 percent.

Marketable alternative strategies returned -4.0 percent compared with 2.7 percent in 2015. Distressed debt returned -0.6 percent versus 5.4 percent a year ago.