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How Endowment Managers Ensure More Than Just Financial Returns

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How Endowment Managers Ensure More Than Just Financial Returns

Across the United States, higher learning institutions control hundreds of billions of dollars in endowments. Keep reading to find out why this matters.

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Just how much money do universities and colleges have in endowments?

According to a survey released in early 2014 by the National Association of College and University Business Officers (NACUBO), U.S. colleges and universities have a total $448.6 billion in their endowments as of June 2013, an increase of 11.7 percent in fiscal year 2013. These data were gathered from 835 U.S. colleges and universities that participated in the survey.

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Where does all that money go?

Many endowments are designed to be a permanent source of capital that helps fund institutions of higher learning for the long-term, which is helped made possible by income earned by these endowments from capital markets investments. “Many institutions use their endowment income to fund financial aid and other programs for students and faculty,” according to the NACUBO survey. Additionally, in fiscal year 2013, American colleges and universities used an average of 8.8 percent of their endowments to cover operational expenses, according to the same survey. Supplementary financial aid and operational expenses with income from schools’ endowments help to make college affordable for many Americans who simply otherwise could not afford the cost of a college education.

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Who is in charge of these endowments?

American colleges and universities hire top professionals to manage their endowments’ investments. At Notre Dame, for example, their endowment is managed by a dedicated team of 17, all of whom are alumni of the university. “One fruit of their labor [is that] [t]he school’s annual financial aid budget has risen to $115 million from $5 million in 1990.” The Wall Street Journal reports that the endowment has an 11-percent annualized return as of June 2013. Many universities hire one or more professional asset management firms to invest the funds in their endowments on their behalf. Others utilize a hybrid approach in which management of the endowment is divided between the endowments’ own staff and external asset managers.

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What does this mean for American higher education?

Endowments are used on university campuses for things like financial aid, professorships and research. According to the Association of Public and Land-Grant Universities, endowments allow “[universities] to better control risk because they are not focused on near-term performance results.”

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