University Endowments: A Blockbuster Year
Overall, university endowments returned a median 27% for fiscal year 2021 -- many of the largest funds did much better.
Over the past few weeks there have been a number of articles reporting record-breaking returns for university endowments in fiscal year 2021:
Washington University Investment Management Company (WUIMC) generated a 65% return on its Managed Endowment Pool (MEP);
Harvard Management Company (HMC) recorded a 33.6% investment return;
UNC Investment Fund of University of North Carolina at Chapel Hill, reported a return of 42.3%; and
University of South Carolina’s endowment saw record growth of 26% for the year.
The Financial Times summarized some of the returns in a recent article:
The debate over the size and use of university endowments is not new, but the deluge of cash some of these institutions received has brought them under renewed scrutiny in recent weeks.
A throwback to Amherst’s then President, Anthony W. Marx, Los Angeles Times OpEd (Oct. 12, 2008), Defending College Endowments.
Why did Endowments do so Well: Private Equity
Endowments Post Highest Returns Since 1986 Inside Higher Ed
University Endowments Mint Billions in Golden Era of Venture Capital WSJ
Higher ed endowments surge from venture and private equity investments Axios
Venture Capital Spurs Endowments’ Record Returns Chief Investment Officer
How Do Universities Distribute the Money?
Big Endowment Returns Pressure U.S. Colleges to Boost Spending Bloomberg
Baylor University's Endowment Distribution Baylor University
Harvard’s endowment is worth $40 billion—here’s how it’s spent CNBC (2019)
Cornell’s Endowment Posts 41.9% Return, Marking Largest Gain in Decades The Cornell Daily Sun
The More You Know
What is the tax treatment of college and university endowments? Tax Policy Center
Redistributing Large Private College Endowments Inside Higher Ed
The Push for College-Endowment Reform The Atlantic (2017)
CHART OF THE WEEK
It’s understood that the more you can invest, the more you can earn. This creates a paradigm in which schools with large endowments, who in turn have better access to private equity and other alternative investments, have earned more.
An endowment can increase financial independence, subsidize charitable activities, and generally provide a general good to the public. However, at some point, is an endowment too large?
The Urban Institute study noted (emphasis added):
At public research universities, endowments have grown more rapidly than expenditures, as public appropriations have covered a declining share of the cost of education. Growth in the endowment-to expenditure ratio suggests that the share of expenditures covered by tuition revenues would have grown even more without the development of endowments, which are smaller at public research universities than in the private nonprofit sector.
Why this Matters:
Universities are lobbying for elimination of the endowment tax, citing that “it pulls money from funds raised for teaching, scholarship and student aid.”
With a vast increase in university endowments there is increased scrutiny on use of the funds. For public schools, states may even look to these as a way to indirectly close future budget gaps.
Growing pressure on universities to curb the cost of tuition in an era of increasing student debt will bring scrutiny to how much of these returns are used for financial aid.
Despite this scrutiny, it’s important to remember that institutions mostly have restrictions when it comes to using endowments for immediate cash shortfalls or other payouts.
As the size of endowments increase, Federal legislation may look to them for revenue.
The Big Picture:
Despite rising costs, institutional grants make up the largest portion of undergraduate student aid in 30 years.
Opportunity Hoarding at an Elite Private University Inside Higher Ed
The Issue: Given some universities’ immense wealth, shouldn’t they do more to serve a much larger number of undergraduates?
But there is something obscene, in this day and age, with a richly resourced university treating itself as a walled garden and hoarding its enormous resources for a minuscule student body.
If Not Now, When: Why Won’t Universities Spend Their Money? Medium
The Issue: If institutions didn’t draw on their reserves during last year’s CVOID-related issues, when will they ever?
Basically, university administrators use endowment as a measure of their own success. As fairly compelling evidence, the profs show that universities do sometimes dip into endowment spending, but almost never to the point where the endowment would fall below what it was worth when the current president took office.
Any opinions expressed herein are those of the author and the author alone.