Still battered from 2008 liquidity locks, endowments continue to peel their way out of holes from the financial crisis.

Some market participants may suggest that endowments have long “poked fun” at pensions, their institutional investor counterparts.

A better understanding of alternative investing and higher compensation to attract top investment talent are just among the few reasons why some endowments have had a chip on their shoulder. Yet, even the most sophisticated investors were burned during the financial crisis, and endowments and foundations are no different.

According to fiscal year 2011 (July 1, 2010 to June 30 2011), the Nacubo (National Association of College and University Business Officers) and Commonfund Institute joint study of endowments, endowments industry-wide generated a one-year return of nearly 20%, up from 12% the prior fiscal year.

Still, despite general positive news, 47% of the 823 participating funds reported lower returns than that in the harrowing year of 2008.

“Even though we had a generally good year, with fewer endowment dollars underwater, and lower long-term institutional debt, continuing volatility is still a challenge for endowments, which currently hold $500 billion assets industry-wide,” said William Jarvis, the managing director of the Commonfund Institute.

Though ongoing volatility continues to pain endowments, Jarvis noted that they’re “currently taking advantage of the low interest rates while they are still trying to dig themselves out of a hole.”

The fixed income average rate of return has doubled for endowments since 2009—from 3 to 7%. As the risk/return pendulum would have it, a move towards more fixed income allocation also means detraction from the riskier investment strategies often practiced by hedge and private equity funds—the long-time comfort zone of most endowments. Hedge funds returned nearly 9% for endowments in fiscal year 2011, largely unmoved from the previous year.

But how far can endowments crawl up the risk management ladder without seeing a slip in returns? After all, their mandates are to generate spending money on behalf of universities.

“Within a three year reporting period, the endowment average rate of return is 3.1%,” Jarvis continued. “Yet, spending rates in 2011 were calculated on average at 4.6%…you can conclude that returns are not keeping up with the needs of these institutions.”