Thursday, July 2, 2009

The "sad, suffering" Ivy League and their "dumb" endowments

Don't miss two pieces out this week, one in the Wall Street Journal and another in Vanity Fair, on how the economic recession has wreaked havoc on the endowments of the Ancient Eight.

The article in Tuesday's WSJ reported that endowments with less than $1B "generally held us better by putting more money in fixed income and less in alternative investments like hedge funds."

That news comes as the universities with the five largest endowments (Harvard, Yale, Stanford, Princeton, MIT) have each reported declines of between 22 percent and 30 percent over the last 12 months.

To make matters worse, while the average college depends on its endowment for 5% of its operating revenue, in the Ivy League that jumps to between 25% and 45%. Doesn't get any worse than Princeton, where a whopping 45% of the annual operating budget comes from endowment funds.

Vanity Fair has a run-down of the budget cutting and construction stopping at each Ivy as administrations tighten their belts and prepare for a rough two fiscal years (at least). Look at the list, it appears Princeton and Penn are the only two Ivies who have avoided layoffs ... up until this point.


Anonymous said...

Normal endowment spending is 4 to 5.75 percent. Where on earth are you getting 45 percent from?

Loyal Watchdog said...

In a year, the university normally spends up to 4-5.75 percent of its endowment. But the article is stating that 45% of the University's operating budget for the year comes from the endowment, with the other 55% coming from other sources such as student tuition. Two totally different concepts.

Anonymous said...

Although normal endowment spending is 5% (but Princeton is currently spending in excess of 6.5%), this 5% funds 45% of the university's annual operating budget. That is, a huge percentage of the operating expenses are funded by the endowment (rather than tuition and other revenue sources) which makes the university particularly susceptible to downturns. As the endowment declines, keeping the payout in the 5% range will necessitate deep cuts given how much of the operating budget is funded by this 5%.

Anonymous said...

If the University had taken a fixed income approach to managing the investments in its endowment would be much smaller today, even with the 30% decline over the past year.