Notre Dame published its fiscal 2021 annual report, including updates on the University endowment, Jan. 26. The annual report was audited by PricewaterhouseCoopers in November 2021 and released after an internal proof.
The report documented a 53.2% endowment return, the second largest in University history, as well as shifts in revenue and expenses in response to the COVID-19 pandemic.
Due to the academic calendar, the University’s fiscal year ends in June. The fiscal 2021 report covers the period from June 30, 2020 to June 30, 2021. As of June 30, 2021, the endowment was worth $20.3 billion, and endowment returns were the primary driver of the $7 billion increase in overall net assets in fiscal 2021.
Despite a volatile year due to the COVID-19 pandemic, University spokesperson Dennis Brown said the pandemic did not affect the long-term investment strategy.
“Even as we continue to adjust in uncertain times, Notre Dame is well positioned—thanks to sound fiscal decision-making over many years—to advance its distinctive mission and have an ever greater impact as we seek to be a force for good for a world deeply in need,” University President Fr. John Jenkins wrote in the report.
Even though the University’s $20.3 billion endowment exceeds the wealth of the nation of Guinea or Malawi, much of the money is subject to donor restrictions and only a small portion is paid out each year. Since the University has more than $500,000 in endowment per student, net investment income is also subject to a 1.4% excise tax, amounting to just under $100 million in fiscal 2021.
The University distributed $459 million from the endowment pool in fiscal 2021, representing only a minor increase since the 2020 payout. Two-thirds of that payout carries a donor restriction that limits the money for use in a specific program.
For this reason, “tuition revenue remains a critical source of flexible operating revenue,” the annual report states.
According to the report, financial aid is the primary beneficiary of endowment payout.
“Financial aid is the single largest beneficiary of the endowment; 42 percent of our operating endowment spending was directed to student aid in the fiscal year 2021,” executive vice president Shannon Cullinan wrote in the report.
The report said the endowment payout is “critical to maintaining need-blind admissions and the commitment to meet full undergraduate financial needs.”
Brown said University scholarships and fellowships awarded totaled $357 million in fiscal 2021, a 6% increase from the previous year. The amount contributed to financial aid is “anticipated to grow in a similar fashion in fiscal 2022,” he wrote in a statement to the Observer.
Within the endowment pool, investments are divided up between public equities, private equity and multi-strategy investments. All three divisions of the endowment outperformed their benchmarks in fiscal year 2021.
Private equity, which includes venture capital investments in start-up companies not traded on the public market, gained a larger lead as the largest allocation of endowment.
“The role of private equity, including venture capital, is to drive long-term capital appreciation and generate returns in excess of public markets,” Brown wrote.
According to the Wall Street Journal, venture capital played a large role in recent endowment growth at many universities.
At Notre Dame, private equity comprises 45.9% of the endowment pool compared to 38.1% in fiscal 2020, a significant increase given the higher risk of private equity and venture capital investments.
In total, fiscal 2021 endowment returns were second only to fiscal 2000 returns during the peak of the dot-com bubble when the University realized a 57.9% return. The online speculation bubble subsequently burst, and the University returned -7.6% in fiscal 2001 and -8.9% in fiscal 2002, Brown confirmed in a statement.
Many business news outlets compare the optimistic market returns of 2020 and the first few months of 2021 to the dot-com bubble. When asked whether the University was concerned about the prospect of another bubble, Brown said the University maintains a long-term investing outlook.
In addition to investment and endowment pool updates, the annual report also detailed changes in revenue and expenses due to the ongoing COVID-19 pandemic. The University decreased its general administrative costs to offset the added costs of the pandemic response and forgone revenue in the absence of full scale sports games and events. To cut expenses, the University enacted policies to limit non-essential spending and limited travel to cut back on costs.
“These cost savings outweighed expenses directly associated with pandemic-related safety measures, such as the quarantine and isolation of students and robust testing and contact tracing programs,” the report said.
Brown said the University incurred more than $36 million in pandemic-related costs.
Total gifts made in fiscal 2021 totaled more than $300 million overall and $173 million directly to the endowment pool. Giving decreased from around $500 million in fiscal 2020, but the report stated that donations typically vary with campus construction and expansion.
University annual report shows strong financial performance despite pandemic
Courtesy of Notre Dame Annual Report Fiscal 2021
The 2021 endowment pool generated the highest returns since fiscal year 2000.
Financial aid composes the largest portion of endowment payout, and some of the money allocated to general operations also supported financial aid.
As of fiscal 2020, private equity and public equity investments had a similar allocation.
Following fiscal 2021, private equity investments now make up a greater allocation of the endowment pool.
Auxiliary enterprise revenues decreased due to pandemic sports and events restrictions and endowment payout remained largely consistent with prior years.
Charitable contributions ebb and flow in line with campus expansion projects, the report said.
