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May 20, 2012
We found an interesting post on college endowments that reveals some tidbits that may well surprise you. Did you know that total college endowments in the United States reach the hundreds of billions of dollars? That’s a whole lot of money! In fact, as of 2009, the total of college endowments across the United States stood at $326 billion. And that was down from $413 billion the year before! College endowments have struggled to return to their 2008 totals — before the collapse on Wall Street. Of universities across the United States, which school do you think has the largest endowment. If you didn’t already know, it shouldn’t be too big of a surprise. Harvard University has the largest endowment by quite a lot (at $32 billion). Which college is next in the food chain? Yale. They’ve got a $19 billion endowment. Indeed, 75 colleges across the U.S. have endowments that number in the billions of dollars.
We've got some information for you on the secrets of college endowments (infographic from "OnlineUniversities.com").
And how about this tidbit?: According to “OnlineUniversities.com,” “Ivy League endowment fund managers get access to the best opportunities: In a 2008 study, researchers from Harvard and MIT sought to explain why wealthier schools, like those in the Ivy League, receive endowments that far outpace other schools. The obvious answer was that high-quality alumni get good jobs for good money, then they donate. But a surprising find was that the excellent investment returns these endowment funds get are the result of managers’ connections and special access to the top strata of alternative funds. In other words, endowment funds at wealthy schools secure the best management talent because they’re wealthy, and the best managers make them wealthier, and around and around it goes.”
What else? The vast majority of the endowment is invested (about 95%). The other 5% is used to fund scholarships, endowed chairs for professors, etc. And why don’t colleges use their endowments to lower tuition, you ask? In order to lower tuition, colleges need to experience more growth years like 2011 (to make up for all of the losses stemming from 2008). They’re even required by law not to force their endowments “underwater” — an excuse many colleges use not to tap into their endowments too heavily. But a paper in the “Stanford Law Review” states that this is not in fact the case under the new law (the Uniform Prudent Management of Institutional Funds Act). But does that mean colleges will begin tapping more and more into their endowments to lower tuition? We think not.