University Endowments

College Search & Selection
1

<p>In the vast majority of cases it seems that college endowments are largely factored into the perceived reputations and "rankings" of schools. However, what is unclear to me is what possible role these endowments play in furthering the goals of any university. True, by investing the money these schools become unbelievably wealthy, but how much of the endowment is truly invested? And if they money is not invested, would these endownments not be an enormous burden on the American economy? Essentially I am unsure as to why schools bother saving billions of dollars when that money could be better used to improve the school's facilities. If, for example, a second tier elite school such as Duke were to spend even half of its endowment in procuring the best professors, etc., it would unquestionably surpass any other school in the world in terms of quality of education. So what is the rationale behind the amassing of huge endowments?</p>

2

<p>yeah duke is so second tier... </p>

<p>anyway, from what I understand, schools spend the INTEREST earned from the endowment on the school. Therefore the larger the endowment, the larger the spendings. I could be totally wrong thouh.</p>

3

<p>I realize that you are asking an innocent question, AND your innocence does show through! ;)</p>

<p>Endowments are VERY important in furthering the goals of a university/college. Financial endowments are generally funds that are invested with the purpose of distributing the interest gained (and sometimes, a portion of the principal) to achieve objectives desired. In the case of a university's endowment, the "endowment" is typically the aggregate of many smaller "endowments", some made by philanthropic donors to realize specific goals, such as the construction of an academic facility, or athletic program, or academic program. These smaller endowments may "endow" a professorship/chair or a scholarship. In the case of some schools, such as Emory University, there has been an unveiling of a new master campus plan that will include building a new hospital, creating a new academic quadrangle, new dorms, and improving facilities both within the campus and into the adjacent Atlanta neighborhood community. The planned cost is about $2.5 billion, spread over time. This would not be possible without the accumulation of an endowment in the multiple billions of dollars. The endowment is an asset that must be managed wisely by a number of funds managers, just like a capital funds company (i.e., Fidelity Investments). The benefit through wise management is the interest earned for planned improvements to a university's programs and facilities. Duke University does the same thing.</p>

<p>The fact of the matter is that most elite colleges could not possibly survive without ongoing fundraising that takes place every day to increase their endowments. Even with increasing tuition and education fees, universities are not able to sustain their day-to-day operations on those revenues alone. The endowment helps tremendously, as do other philanthropic donations as they come in. Consider this, if a typical spending year is 5% of the endowment's value, for Emory University's $4.5 billion endowment, the available funds would be $225 million. The reason why all of this isn't all spent at once is that a momentum has to be sustained for the future. Investments are made with the idea that they will bring about realized return and benefit. Unfortunately, even benefits are not self-sustaining. An investment in a new facility or program often will incur ongoing operational expense in order to maintain the quality of the program. With physical assets, there is a depreciation factor. Even as we speak, there is construction underway to prepare for new dorms to be built and old dorms to be torn down at Emory. Managing the funds in an endowment requires scrupulous judgment to take care of the present while planning for the future. An endowment represents an assurance for this.</p>

4

<p>Thanks a lot for the thorough reply, the subject is much clearer now.</p>

<p>However, it seems as if the only reason for hoarding such a large endowment would be, as cited in your example, for the purpose of funding a major expansion in the university's programs. Granted enough were set aside for such an improvement, as well as discounting the portion set aside by the donors, there still remains a large portion of funds that is essentially has no purpose besides being used to make more money.</p>

<p>Furthermore, judging from trends over the past few decades, elite university endowments have been steadily increasing, meaning that not only are schools not touching any of their underlying principal, but also are not spending all of the interest. I believe there was an article in the WSJ a few months ago discussing the growth of university endowments over the past fiscal year, the most dramatic of which was Stanford's with a growth of ~17% if I recall correctly. Now if 5% were spent annually and inflation were taken to be ~3%, that leaves a hefty 9% reinvested back into the endowment, money that in my opinion should be put to good use.</p>

<p>I don't know, it just seems a little ridiculous to think that schools like Harvard would somehow need $26 billion as an assurance for future viability and expansion. Indeed, I am skeptical as to why a university would need to maintain a fund larger than 2.5 - 3 billion if they could simply dip deeper into the interest if need be. Also, the money splurged to get those better professors would improve the overall quality of the school, meaning a better education, more satisfied students, and more donations.</p>

<p>With regards to Duke being second tier, my statement was that it was second tier among elite universities, which I believe is true.</p>

5

<p>I guess veggz, the high school honor student, is an expert on college rankings.</p>

6

<p>veggz, </p>

<p>you can look at it in 2 ways. </p>

<p>1) every college is a business. every business's goal is to make money - in order to offer something that a competing business doesn't offer. Every school is constantly trying to 1 up its competitors in order to remain...competitive. having large endowments allows schools to have even better expansions and even better professors and even better whatever else that school wants.</p>

<p>2) these schools with huge endowments - think of them as rich people. the truly wealthy people don't live off the interest of their principle. they live of the interest of their interest - allowing for larger principle and you guessed it larger interest year after year.</p>

7

<p>Actually, most top schools do use their endowments to buy top professors, to fund major research initiatives (Stanford stem cell research, etc), and to expand or improve the campus environment. They also use it to fund scholarships for underpriviledged and minority students as well as holding tuition down for all. Rice has a 30% lower tuition than other Tier 1 schools primarily because of the endowment and how they use it. Duke is consistently rated in the top Tier of schools, usually ranking behind HYPSM is most ratings.</p>

8

<p>If you have a huge endowment it gives you a lot of revenue per year in intrest, and you have a lot of money stashed undere the proverbial matress in case you feel like building a new building, etc.</p>

9

<p>But still, 25 or 26 billion dollars is a grat deal of money. Even if it wanted to build an olympic stadium on campus, Harvard would have a ton of money left over......</p>

10

<p>I used to talk about this when I was a tour guide at Harvard. (And the endowment was only $14 billion when I gave my first tour!)</p>

<p>The endowment comes into play in many small ways, most of which aren't directly related to education per se. Running 13 undergrad dining halls instead of 2 or 3 big ones, so that everyone has a cozy place that feels like home. Maintaining the largest university library system in the world, so essentially any source in any language is at your fingertips. Operating so many research labs in so many fields that any student who wants a research role can get one. The highest professor salaries of any college in America. Need-blind admissions and full financial aid guarantees even for international students. Acquisition of property for new state-of-the-art buildings in an area with sky-high land values.</p>

<p>All of those things are basically perks that help attract the best faculty and the best students...who then educate one another.</p>

11

<p>Need-blind admissions? This is something many schools do, schools that don’t have 25 billion dollar endowments. As for dinning halls, I don’t know how much it costs to operate a dinning hall, but I don’t imagine it’s that much (in terms of university spending). The University of Illinois has the 3rd largest academic library in America, but only a 1 billion dollar endowment, so unless Harvard’s books are especially rare and expensive, I don’t see that as a major cost. Many, many universities offer diverse research opportunities – granted, more money does increase this possibility, but I refuse to believe that such a massive amount is needed. Honestly, the only things on your list for which I can understand needing a large endowment are property acquisitions and professor salaries (even this should not require several billion dollars to accomplish).</p>

12

<br>


<br>

<p>Of course they do. Does the college president spend all of his time trying to increase the endowment? This is what most of them are doing. If they didn't think it supported their mission to do that, they'd give the president a more important project to work on.</p>

<br>


<br>

<p>Of course it isn't NEEDED; it's desirable. It means that they can spend on all these things without a moment's worry about the future. It gives them a degree of institutional security and stability that most of the world's nations don't have. What do you think Harvard and Yale should do with all their money?</p>

13

<p>"What do you think Harvard and Yale should do with all their money?"</p>

<p>-The same thing Warren Buffet is doing with his: help make the world a better place! I don’t think the schools should give all their monies to charitable causes, but endowments over 10 billion seem extravagant to me.</p>

14

<p>kk19131, an endowment is a financial instrument set up for the solicitation and management of capital funds for the purpose of using the interest earned from its proper investment. For a university/college, it's nice to have a large endowment because it provides assurance to students and prospective students (and their parents) that the school is in the position of providing a quality education AND that that investment in the education will continue to pay dividends through sustaining its prestige and stature as a place of higher learning. </p>

<p>This is exactly why Harvard has been able to build their endowment to such a level. In Harvard's case, it's much like other wealthy entitities... the rich seemingly get richer (and it's true that the more money you have, the easier it is to make even more money). Any endowment is established for the purpose of making "the world a better place", although people have different opinions of how this can best be accomplished. With most endowments, the administration, management and investment of the funds are tightly controlled. Donors can (and do) stipulate how funds are to be handled and how interest is to be distributed. The administrators of Harvard's endowment (as is true for most endowments, educational or otherwise) are not able to freely take actions for spending the principal (or the interest) without a great deal of oversight by trustees who are bound to respect the endowment's guidelines and major donors' wishes.</p>

<p>I suspect that you and many others would not be against the idea of these large endowments sharing the wealth, but the restrictions are overbearing.</p>

15

<p>And U Illinois gets tax money that private Universities don't get.</p>

16

<p>"And U Illinois gets tax money that private Universities don't get."</p>

<p>That's not true. Several schools are private and state-aided. And even with the money that UIUC gets from the state, it doesn't equal 10 plus billion dollars....</p>

17

<p>To estimate the endowment equivalent of the UI funding from the state take the funding (say $400 million or so) and multiply by 20 which is $8 Billion. That's the endowment needed to payout $400M at the typical 5% payout rate.</p>