U.S. college and university endowments posted an average loss of 0.3 percent for fiscal 2012, a sharp reversal from a gain of 19.2 percent a year earlier, pressured by volatile international equity markets, according to a study released on Friday.

Institutions with the biggest endowments reported the highest returns, according to a study by Commonfund Institute and the National Association of College and University Business Officers (NACUBO).

For the fiscal year ended June 30, 2012, endowments of more than $1 billion had the best returns, with a gain of 0.8 percent. The lowest rate of return was for endowments with assets between $51 million and $100 million, at a loss of 1.0 percent, the study showed.

"It was a very bad year for international equities; you had China slowing down, euro zone problems, so it had a very negative impact on equities outside the United States, that was a big drag on those portfolios exposed," Verne Sedlacek, president and chief executive of Commonfund, told a press conference.

The study was based on data from 831 U.S. institutions with endowment market assets totaling $406.1 billion.

Over the last 10 years, endowments generated average annualized returns of 6.2 percent, out-performing the 5.5 percent gain posted by Standard & Poor Index for the same period, Sedlacek said. Those returns, however, still trail institutions' average long-term target rate of 7.4 percent.

"The 6.2 percent sounds pretty good, but actually over the last 10 years, with the financial crisis, with the recession, universities have lost ground when you adjust for inflation," Sedlacek added.

Longer-dated fixed-income investments generated the highest return with an average of 6.8 percent, while international equities produced a loss of 11.8 percent.

While endowments with assets over $1 billion reported the smallest fixed income allocation, at 9 percent, they realized the highest return from this asset class, an average of 9.1 percent, the report showed. Endowments with assets under $25 million benefited from the largest fixed income allocation, at 29 percent, despite reporting the lowest return, an average of 6.1 percent.

International equity markets were the biggest drag on all the institutions, large and small. All groups, from those with assets under $25 million to those with over $1 billion reported losses ranging from 13.2 percent to minus 10.5 percent in their international equity allocations.

In alternative strategies, which returned just 0.5 percent, private equity showed the largest return, at 5.1 percent, compared with 18.7 percent in the previous fiscal year.
Marketable alternatives, also known as hedge funds, showed a loss of 1.2 percent compared with a 9.4 percent return the previous fiscal year. Commodities also disappointed.

"You would think that in a year with a relatively flat stock market that hedge funds should do pretty well relative to the U.S. market, and that was not the case in fiscal 2012," Sedlacek said, adding that hedge funds are active stock pickers and they did poorly relative to a passive approach.

The effective spending rate, or the percentage of an endowment's value at the beginning of the year allocated for operating expenses, was 4.2 percent for the 2012 fiscal year, compared with 4.6 percent the previous period, while decreases in gifts and donations to endowments have been a cause for concern in the aftermath of the 2008-09 financial crisis.