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Friday, January 18, 2008

Friday, January 18, 2008

The Endowment Boom: A sign of Illness?

Inside Higher Ed has a report on university endowment growth last year. If you follow this topic the data won't surprise you. The rich got richer faster - Harvard and Yale, the two biggest, grew 23 percent and 28 percent respectively. The report includes a table showing that the smaller you are, the slower you grow, which of course is a familiar rule to those of us living in eagerly Darwinist America. It's worth noting that the lowest average growth figure is 13.6 percent, which is very high.

The report does not note three other important things.

First, endowment growth has been decoupled from the growth of the overall economy, of state budgets, and of general educational support for public universities. 13.6 percent is 2-4 times higher than average state increases, faculty salary increases, and the like. As I've noted before, the universities that educate 90 percent of higher ed students have little or no endowment income and are barely keeping ahead of inflation - and only in the last couple of years. Endowments index higher ed health about as well as Brad Pitt's income indexes the health of yours and mine.

Secondly, coverage of "creativity" in finding "alternative" investment strategies for university endowments lags behind coverage of the financial sector in general. There, creativity has become a facetious proxy word for blind faith in structured investment vehicles whose risk "beta" is obscure and which have been starting to blow up. Universities will not be getting these kinds of endowment returns this year or the next or the next. Some may lose money just like the pros at Merrill Lynch and Citigroup have managed to do.

Third, this is a good time to think about restoring stable, broad-based funding for majoritarian higher ed. This means taxes seen as a public investment, and not the transient miracles of the financial loaves and fishes that in any case are lavished not on the general followers but on the few.


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