UChicago at Davos: President Zimmer's Remarks on the U

Colleges and Universities A-Z University of Chicago ✅
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Full video found here: https://www.youtube.com/watch?v=W0Wr0X8JrDU

News report found here: https://www.chicagomaroon.com/article/2020/1/22/zimmer-davos/

It’s interesting how the US News rankings come up right at the start of the discussion. Nice how the moderators got this year’s ranking wrong - they kept talking about Chicago being in the “top 3 - 5,” while this year, we’re #6. This also doesn’t bode well for the future - I doubt that Chicago will get another top 3 ranking for some time.

Further, Zimmer really seemed to mesh Chicago with the realities of the time ("[Chicago] had a series of stories it was telling itself that were not true…"). I think some of those “stories” were that rankings don’t matter, and that practical applications or pre-professional pursuits are outside the wheelhouse of the U.

Another interesting tidbit - when the accounting is done, the campaign will have raised in the range of $5.5 Billion. This is a nice sum, but still woefully short of what the U. needs (I said this elsewhere, but to match the U.'s aspirations and kick its debts, it probably needs in the range of a $20B endowment).

Anyway, the “Academic Ivy” is in motion…

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Here come @Cue7 and his weekly “bad” news on U of C.

Please stop pulling number out of thin air to denigrate U of C. If U of C has to reach $20 billion endowment to make U of C competitive, by the same logic maybe Columbia and your beloved UPenn should close up shop when their endowment is “low teen” billions. Ditton for MIT for its $16 billion endowment. How many schools have $20 billion + endowment?

https://thebestschools.org/features/richest-universities-endowments-generosity-research/

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@85bearsfan asks “how many schools have a $20B endowment?”

Answer- the schools Chicago wants to compete with.

Per what Zimmer says, it looks like chicago’s aspirations are different than Penn’s or maybe even Columbia’s…

If Penn planted a flag and sought for the top 3, you’re right, they’d need even more money, too.

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Penn. Columbia. MIT. All of them have long ago planted that flag. The difference is in the execution.

One can now say that MIT has already reached number 3 since it’s perennially added as the M to HYPSM (Really, already number 1 globally in many peoples minds because it’s an 800 lb gorilla in the categories it dominates)

MIT proves that there are more than 3 schools in the “top 3”

To be “top 3” UChicago only has to be the top choice of a sizeable population of applicants. And be considered a consistent and respectable alternative to half of HYPSM so that even if overall it’s somewhere between 1 to 6 in peoples minds and in US news, it washes out to “top 3”.

UChicago is trying to do more with less $$$. As long as it continues to execute well it will continue to do so.

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Not since Cato the Elder ended every speech with “Cartago delenda est” and Nietzsche developed the catchy slogan that “God is dead” has the world seen such monomaniacal repetition as Cue’s “Chicago must become an ivy or die.”

Thanks for the link, Cue. Yes, Zimmer made that cryptic reference to telling stories that were not true. That was in the context of his observation that before his advent the University had become discouraged and “resigned”. Those stories might have been paraphrased as, “This University in this decaying neighborhood has run out of energy and belief in its mission.” Zimmer is claiming to have turned this around. Sounds like he’s working on his own legacy story. Maybe some of it is true.

Yes, the rankings were referenced, but he was at pains to say that they aren’t important in themselves as opposed to some of the underlying factors reflected in them, and he also spoke rather passionately about Chicago’s having always offered a unique education very different from that of its peers. In his remarks about I.M.E. he made the point that Chicago had not set out to copy M.I.T. but to develop something quite different and special.

He is there in Davos to raise money, and he and Rubenstein both made explicit pitches on the basis that Chicago’s endowment is lower than that of its peers. Good for them. I hope some of the people in that room wrote some checks. It was, however, interesting to me that the President of L.S.E., sitting on the stage with them, said that its endowment was miniscule in comparison to Chicago’s - something like one-twentieth, I believe she said. Not exactly an apples to apples comparison, given the state funding of universities in the U.K., but still.

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Thank you for posting the link Cue.

I really enjoy David Rubenstein’s interviews, although I’m a little happy not to be the interviewee. His questions, for me, carry just the right amount of provocation. And they keep the interviewee, even very very intelligent ones like Robert Zimmer and Minouche Shafik, just a little off balance. His sense of humor really appeals to me. It’s almost as though Pres. Zimmer is his straight man. I say that with respect.

Aside from that, as a closet conspiracy theorist, I would like to pose this question. Why did UChicago choose to invite the Director of LSE to this panel discussion?

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While I agree that having a nice sized endowment is helpful, having a large endowment has its own problems. I wish I could pull the paper that discussed this in detail on what huge endowments really mean, but I just can’t find it.

From memory, the paper basically said that a large endowment essentially means the following

  1. The administration is unwilling or unable to figure out where to make good bets in education so instead they sit on the huge pile of cash (figuratively speaking) thus incurring opportunity costs

  2. Once the endowment is large enough, it sets up perverse incentives for the administration to build un-needed bureaucracies and eschew promising opportunities

  3. Large endowments also make the administration less responsive to important stakeholders like alums and faculty and increasingly the university moves away from its educational mission to become more like a “financial services” company with education as its side business .

Yale with its $20 Billion plus endowment is only a threat to UChicago if the administration is entrepreneurial enough to spot opportunities in education that Chicago misses and then uses its financial power to muscle its way in and become the big gorilla in that space.

Can this happen? Of Course, but the more important question is What is the probability of this happening? I wouldn’t bet on it, because college administrators are not a risk taking bunch.

Why has Yale not been able to muscle its way into becoming an engineering powerhouse, by spending down its endowment? Most likely, because it is unwilling or unable to do so. Most administrations are unwilling to use the endowment to make a big strategic bets because if the bet goes bad, their heads will be on the block, so they will play it safe. The President and Board doesn’t want to risk it. They just want to see the money grow.

And as long as Chicago’s richer peers follow this approach, the real difference on the ground between an $8-$10 Billion endowment and a $20-$40 Billion endowment will be negligible.

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“Why has Yale not been able to muscle its way into becoming an engineering powerhouse, by spending down its endowment?”

Yes, execution matters.

Yale has not muscled its business school into the top along the M7 despite them being a much richer university either. They built a new facility. They re-branded. They even went as far a poaching the dean of Booth.

Execution matters. UChicago can still fail at execution too - that is a bigger risk than the endowment. But so far, the changes have been thoughtful, right sized, and targeted (IME, Business Econ, UCareersIn, TO). And the execution has so far been net positive or neutral.

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UChicago’s endowment is right where it needs to be if they wish to avoid the federal excise tax on net investment income. Right now, they are right under that $500k per student threshold to avoid the tax. Otherwise, it’s a little over $8 mill/year in federal taxes (assuming net assets of $8.5 bill and their current return of around 6.9%). If their return springs back to 8%, that’s $1.5 million more. Might not seem like a lot but $8-$10 million probably pays for quite a few faculty members (all in). No doubt they have done this analysis and know how to make this calculation more accurately. Some asset classes might be excluded, for instance. Anyway, a small increase in endowment wouldn’t be costless; in fact, the present value of those “taxes” would be around $121 million ($8.5 million/year at a discount rate of 7%). That’s the threshold a large donor (or group of donors) would have to clear to make the donation worth it to UChicago, assuming that the donation kicks the school into “endowment tax” territory.

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@JBStillFlying - I doubt the endowment tax seriously inhibits the school’s desire to grow their endowment. It’s an annoyance, no doubt, but I anticipate the endowment managers’ main directive is to grow the endowment as strongly as possible.

Also, I agree, Chicago has done more with less, but sometimes, more is more. Especially as running a U. gets ever-more expensive, larger payouts from the endowment can’t hurt.

(Additionally, keep in mind that for the first 70 years of its existence, Chicago had a top 3-5 endowment - it’s place as a financial middle weight, by institutional standards, is a bit more of a recent trend - since about the 80s or so.)

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@Cue7 we’ll see if the College has further growth plans. And they can always spend down strategically. The law won’t keep them from growing but it will or does impact behavior, perhaps more so than it would for the Harvard’s and the Yale’s which are so clearly over the threshold and which have been dealing with endowment tax threats from their respective localities for years now.

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@JBStillFlying - I don’t know if the college has future growth plans, but the U. certainly has plans to grow it’s endowment. I doubt the U. would spend down simply to avoid the tax, especially if gifts for the endowment continue to come in.

Also, the endowment, especially split between schools, will be encouraged to grow. You can bet the Law School, Business School, etc. want to grow their endowments.

From an optics perspective, as well, the U. will want to grow it’s endowment. The Board probably tracks peers closely, and Chicago is one of the few schools that’s seen it’s endowment standing dip significantly.

Looked at broadly, the U. endowment went from #3 in the nation in 1958 to #16 in 1998, and hasn’t really budged meaningfully for the past 20 years. (In 2018, the endowment was still stuck at #16 in the nation.)

The lack of upward trend - for literally two or three decades, is not something the board will look upon favorably, even in light of an endowment tax.

https://magazine.uchicago.edu/9904/html/curriculum.htm

Endowments in 2000: https://nces.ed.gov/programs/digest/d01/dt357.asp

Endowments in 2018: https://www.chronicle.com/article/Which-Colleges-Have-the/245587

(The biggest winners have been UPenn and Northwestern, which moved from #17 and #16 in 2000 to #7 and #10 more recently. Columbia has flagged slightly, from #9 in 2000 to #12, and Cornell has flagged slightly as well, from #14 to #18.)

I don’t know if any other school has done a drop from 3 to 16.

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In all your many posts I don’t recollect your ever making a comment about or offering a memory of a prof, a course, or anything you actually learned or did at the University, @Cue7 . I don’t even have a clear idea of what you think the goal of a college education should be - other than that it would make you and the school you went to rich. There’s gotta be more to life and learning than that. What’s it all about, Alfie?

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@Cue7 at #11:

The university’s financial planners are always going to be looking out for that tax cliff. $8-10 million saved is $8-10 million earned. As long as the university has funds to do what it needs to do - whether that be “investment income” (potentially taxed) or direct pledged contributions, then it needn’t worry so much about the level of its endowment.

Also, Cue, you need to normalize all those endowment values you posted by the number of enrolled students. The publics don’t even begin to compare. As for the privates, ND, with it’s current endowment of nearly $14 billion and its more modest size of 13,000 enrolled, rivals Yale on a normalized basis. And Princeton beats out Harvard. UChicago beats out Columbia and Rice jumps up several notches - ahead of Penn, etc. This is a far more proper analysis of relative endowment size than merely looking at dollars.

A bit of a nit, but I’d also compare UChicago to schools like Duke or NU which are just over the “endowment tax” threshold. They lose several million a year for that position, to the tune of anywhere from $100 - $150 million in present value terms. That really has to be subtracted out from their endowment. It won’t change their absolute ranking in terms of $ values, but again, it demonstrates how endowment size doesn’t tell the whole story. UChicago would best remain right under that $500k / student threshold until the opportunity cost outweighs the benefit. Better to be right under than right over :slight_smile: