U.S. Universities Turn on Spending Taps as Endowment Value Rises
Some of the most prestigious universities in the United States are responding to calls to spend more on students and staff after their endowments recorded the highest returns in decades thanks to soaring asset prices.
Universities have been the main beneficiaries of vibrant financial markets, as they devote a large portion of the gifts they receive from alumni and other benefactors into private equity and investment.
But the growing value of their endowments in recent years has prompted universities to share the proceeds with students and employees through lower tuition fees and higher salaries.
“Move to lower costs and increased access, including lowering [the price of tuition], would be a bold and accessible decision in this environment, âsaid Richard Vetter, professor emeritus of economics at Ohio University.
The Massachusetts Institute of Technology this week announced an “unexpected” return on investment of 55.5% for the fiscal year ending in June, prompting the university to pledge to increase the amount it will siphon from the allocation for student and staff expenses.
MIT said it would increase its endowment payout by 30% from 3.1% to 4.2%, an estimated increase from $ 286 million to $ 1.1 billion as of June of next year.
Likewise, Dartmouth College, which this week said its endowment made 46.5% gains in its fiscal year, waived tuition fees for students whose parents earn less than $ 65,000 per year. and granted employees a one-off bonus of 3% of their salary.
And the University of Washington in St. Louis, which posted 65% gains in its fiscal year, said it would spend an additional $ 1 billion in financial aid. He also said he would take a ‘blind-to-need’ approach to admissions, meaning that students who might struggle to pay the full tuition fee will not be at a disadvantage when applying for a place.
The Harvard endowment ended the year with $ 53.2 billion in assets, a gain of 33.6%. In April, the University of Cambridge, Massachusetts, announced it would increase the vehicle’s distributions by 2.5% of total assets based on preliminary returns.
In the last fiscal year, the Harvard Endowment distributed $ 2 billion, or about 2% of all assets.
Spending promises from MIT, Dartmouth and the University of Washington come against a backdrop of solid returns for a handful of the largest endowments. Yale University’s endowment increased 40.2 percent during the year through June.
The feedback has reignited a long-standing debate about the size of endowments at large universities. Many vehicles have achieved annual returns above 10% over the past decade, prompting their spending plans to be re-examined as tuition fees continue to rise.
The average cost of a college education in the United States has tripled over the past two decades to $ 35,720 per student per year, according to the Education Data Initiative.
Students aren’t the only group saying they should benefit from the strong performance in endowments, with staff also arguing for higher salaries and benefits.
âInstitutions often tell us we have to tighten our belts because times are tough,â said Irene Mulvey, director of the American Association of University Professors, a nonprofit organization that represents faculty members. “When times are good then we should all be compensated,” she added.
However, some university administrators quickly tempered expectations of a sharp increase in spending due to the strong performance of endowments.
âCertainly, Harvard is relatively rich in resources compared to many other universities, but contrary to popular perception, the university does not have unlimited wealth,â CFO Thomas Hollister said in a statement. maintenance.
Much of the earnings came from private investments such as venture capital, a favorite among large endowments such as Yale.
Colleges and universities have so far reported median returns of 34.6 percent in the past fiscal year, the best results since the early 1980s, according to preliminary estimates from Cambridge Associates. A 60/40 portfolio of stocks and bonds gained about 20 percent over the same period.
Investors said most of the returns from venture capital were paper gains on the value of holdings, meaning they couldn’t be quickly crystallized to fund even larger increases in spending.
“Much of the number over a year is not realized,” said Andrea Auerbach, head of global private investments at Cambridge, who estimated that the median US venture capital fund had risen 88.1% over the course of the year. of the year until the end of June.
Scott Wilson, WashU’s chief investment officer, said most of the school’s outperformance came from its equity portfolio, but private investment had also been a big contributor.
âWe’re very happy with the performance, but these one-year returns probably aren’t that significant, especially in a year like this,â Wilson said. âWe’ll believe the numbers when the money gets to the door. “