Printer Friendly

Fitch: US Higher Ed Stable Despite Lower Endowment Returns.

New York: Fitch Ratings' higher education portfolio will remain stable despite the results of a study by the Commonfund and the National Association of College and University Business Officers. The study stated endowment returns for fiscal 2015 declined to 2.4%. Ratings are typically unaffected by short periods of weaker returns because endowment funds generally have a very long investment horizon. Moreover, our outlook remains stable because endowment draw accounts for approximately 10% or less of most rated institutions' annual revenues.

Most colleges and universities base their endowment draws on a 36- to 60-month moving average of their investments' market value. These spending policies minimize budget disruption by spreading out the effects of market fluctuations over several years. However, severe investment losses or extended periods of poor returns could weaken the operating performance of institutions that are heavily dependent on investment earnings to support operations. This could put pressure on ratings, especially if endowment spending rates become unsustainable.

Fitch's analysis focuses on the sustainability of the endowment draw and how the draw relates to a specific credit's financial profile. A spending policy in the 4% to 5% range is fairly typical and likely manageable. However, there is increased financial risk if the draw exceeds earnings over a multi-year period. The most recent 10-year average for endowment returns is 6.3%, according to the NACUBO/Common Fund study. While this return is below many endowments' multi-year targets, we expect the long-term impact to be mitigated by fundraising efforts and spending flexibility that have maintained the value of most endowments.

Nevertheless, the primary credit drivers for the sector (e.g. student demand and enrollment, available financial resources and operating performance) support the stable 2016 sector outlook. Fitch anticipates that these factors will remain manageable for most institutions.

COPYRIGHT 2016 Plus Media Solutions
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2016 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Publication:Daily the Pak Banker (Lahore, Pakistan)
Date:Apr 21, 2016
Words:295
Previous Article:Fitch Affirms Orlando CRA, FL's Conroy Road Tax Increment Revs at 'A-'; Outlook Stable.
Next Article:Fitch Rates Oglethorpe Power 2016A Bonds 'A', Affirms Outstanding Bonds & CP; Outlook Negative.

Terms of use | Privacy policy | Copyright © 2021 Farlex, Inc. | Feedback | For webmasters |