<p>From the numbers I see on Princeton they are in as big a world of hurt as anyone. 45% of their costs are covered by the endowment and for 2008-09 4.76% of the endowment was spent.
Sad fact is that most of these guys were spending at a 4% rate or lower until Congress got involved and they all seem to have moved up to 5% together. Princeton has already stated that they are going to spend above their high-end rate of 5.75% for 2009-10, and that is based on the assumption that their endowent is only down 25% which is highly unlikely.
I think a fair rule of thumb is that colleges will have to reduce costs or increase revenue by half(assumes a 50% reduction in endowment) of the percentage that their endowment contributes to their budget. So for Princeton that would be .5 X .45 which is 22.5%. Or they will have to significantly increase the money they take from whats left of their endowment.
Wesley, I believe donors can ask for anything they want in return for their gift but I believe most do not ask to restrict how their gift is invested and I think colleges prefer that they not ask given the headaches of managing the desires of thousands of gifts.</p>
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so, donors of "restricted funds" really have no say over how they're invested?
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<p>Not usually. The "restricted" part usually deals with how the income from the gift is spent. I'm sure there are exceptions. People write all kinds of things into large gift donation stipulations. </p>
<p>Of course, many of the game-changing donations are given in the form of stock. Emory's endowment started with gifts of Coca-Cola stock by company founder Robert Woodruff. Needless to say, Coke stock owned from pre WWII appreciated rather dramatically. There may or may not have been restrictions on selling that stock. I don't know.</p>
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Sad fact is that most of these guys were spending at a 4% rate or lower until Congress got involved
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<p>Actually, the colleges that were able to spend only 4% were doing the correct, prudent thing and the idiots in Congress should stay out of it before they totally screw up higher education, too.</p>
<p>The colleges knew they were riding the crest of a bubble market wave and that those endowment growth rates were not only unstainable, but likely to fall. To lock in budgets at high percentages of a bubble market would be fiscally irresponsible.</p>
<p>The whole idea is to have steady, predictable long-term stability in the operating budget, cushioned from the market and sustainable during both bull and bear markets. You don't want college budgets whipsawing up and down with the markets.</p>
<p>Clearly, even the colleges spending under 4% last year underestimated the necessary cushion. The will all be eating seed corn next year. If Senator Grassley thinks its good for America to have the world's premier system of higher education consuming its own fianancial foundations, he really needs to rethink things. This system of higher education is probably the United States' single most valuable resource in a global economy. It breaks my heart to see these schools spending 6% of their endowments.</p>
<p>^^Well, there are extremes and there are extremes. For example, Wesleyan was an early adaptor of private equity investing back in the late forties when alum, George Davison sunk nearly half the endowment into a venture called, American Educational Publications the chief asset of which was "My Weekly Reader". The income stream from that one investment was so "game-changing" that it threatened the university's tax-exempt status.</p>
<p>It doesn't exactly break my heart (although I don't envy them) to see my friends on the board trying to construct computer models of which copy machine vendor will save what fraction of what % from the endowment draw over the next five years. But, I'd rather have a diligent, sober board pinching pennies than one so unhinged from reality that they lose all sight of the fact that they're running an educational institution.</p>
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But, I'd rather have a diligent, sober board pinching pennies than one so unhinged from reality that they lose all sight of the fact that they're running an educational institution.
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<p>Oh, I agree with that. Long-term, I think this exercise in belt-tightening will be beneficial to college administrations and boards and faculties and students. Specifically, there's been an unhealthy arms race.</p>
<p>All this comes of playing funny money financial games instead of conducting actual business that creates real goods and services.</p>
<p>The discussion of Donor vs. School is fascinating on its own. The more powerful the institution the less powerful is the donor and the more bucks it takes to have some power. I don't know how true it is but it reminds you of Leland Stanford going to Harvard and wanting to dump a bucket of change there. The President of Harvard barely gives him the time of day and doesn't seem all that interested in what he wants to do so Leland figures he can start his own college with that kind of money on land he owns in California.</p>
<p>I looked up Princeton's January 2009 communique on the budget issues. Previously they had told us that capital projects would be delayed, in particular the Neuroscience Institute construction. This time they say this - Trustees</a> approve lowest fee package increase since 1966 - 2/2/2009 - Princeton Weekly Bulletin - where the most important thing to me from a selfish perspective is that they will only increase tuition and fees 2.9% next year. As I am unfamiliar with university budgeting processes, it is a little difficult to interpret the rest.</p>
<p>Gotta love this:</p>
<p>"Eisgruber concluded by noting one major project that will continue full-steam ahead: the University’s five-year $1.75 billion fundraising campaign launched a year ago. “The campaign continues to go forward with enthusiasm,” he said."</p>
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“While many universities may have no choice this year but to raise tuition sharply because other income streams have declined abruptly, we believe that Princeton has the capacity to hold down the rate of its increase, and that it ought to do so,” he said.
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<p>I really wish all these colleges and universities would focus on their own situations and stop running off at the mouth about other schools in their press releases. I have mental images of school officials walking barefoot through the shattered glass of their own financial houses while taunting the guy next door because his glass house has shattered, too. I'm not seeing a lot of heros in the finance/investment offices of any of these schools right now. I think it would behoove them all to be a little humble. I mean, it takes a lot of nerve to be trash talking other schools when you are on the hook for $6.1 billion in unfunded cash call commitments.</p>
<p>Totally agree Interest, especially since they don't have a clue really how they are doing since their funds haven't told them.
The other thing I find interesting to watch is the blame game. Already there is a big fight going on between the new Harvard manager and what happened before her with Pimco's El-Arian and Lawrence Summers. Personally, I think they knew almost 2 years ago how bad things were going to get and the new manager inherited a real mess. Problem is she is going up against two of the best spin-masters of all time so I don't give her much of a chance. Also you see the opposite from Yale where the guy who invented this strategy is still there and out selling the story that there is nothing wrong with it-everything's fine.</p>