Endowment at a college refers to all of the gifts received by the school. Endowment monies are not, however, “no questions asked” cash infusions for the college. Instead, endowments are investments that are intended to develop so that the interest may be utilized to renovate buildings, hire new personnel, grant scholarships, or otherwise assist the institution or its students.
In the last three decades, the total market value of the 20 greatest college endowments has increased by roughly a factor of 10, from $30.6 billion to $302.1 billion. As the amount of educational endowments has grown, so has the controversy around their purpose, administration, and ethical responsibilities.
Bankovia analyzed the market value of the 20 largest U.S. college endowments from 1990 to 2020 to gain a better understanding of how college endowments have evolved over the past three decades.
30 Years of College Endowments in the United States
According to the most recent NACUBO study of 810 colleges, the total market value of endowments was $624.3 billion in 2018. Only 20 universities control 48.3 percent of that.
But why has the market value increased so much in the last 30 years? It might be related to how much of the endowment the institution decides to spend on operations or the investment portfolio’s return rates.
The greatest university endowments may invest in a wide range of asset classes and typically expand faster than the economy as a whole due to their generally affluent donor base and long-term investment views.
From 1990 to 2020, the market value of the 20 largest college endowments increased at an average annual pace of 8.5 percent, above the Fortune 500’s 6.6 percent average annual growth rate.
The universities that have grown the quickest in the last 30 years are the University of Michigan, Duke University, and the University of Notre Dame. Meanwhile, Emory University, Rice University, and Washington University in St. Louis have the weakest increase in endowments.
College endowments in the United States in the 1990s
The 20 greatest endowments in the United States expanded at an annual average rate of 12.5% from 1990 to 1999, the strongest growth rate in the previous three decades.
University of Michigan’s endowment grew from 20th to 17th biggest over this time period, whereas University of Pennsylvania’s grew from 16th to 12th largest, as seen in our graph. Columbia University’s endowment dropped from the sixth-largest to the eleventh-largest.
Even though it grew more slowly than the other 20 greatest endowments over this time period, the University of Texas System endowment remained the second largest overall.
College endowments in the United States in the 2000s
The expansion of endowments is intimately linked to the state of the economy as a whole. Only 4% of endowment assets were retained in cash as of 2018, with the balance invested in stocks, fixed income instruments, and alternative investment vehicles.
University endowments have been progressively investing in high-risk, illiquid investments including private equity, real estate, and hedge funds prior to the 2008 financial crisis. Many colleges had a loss of endowment value exceeding 25%, resulting in tens of billions of dollars in losses.
The overall value of the 20 greatest endowments decreased by 3.4 percent from 2008 and 2009. Yale’s market value fell by 28.6 percent, making it the worst-performing stock. Several other university endowments, such as Harvard, Duke, and Stanford, also saw significant losses during the crisis.
College endowments in the United States in the 2010s
After the Great Recession, growth in endowments picked up, although it was still modest compared to the 1990s. The 20 largest endowments’ market value increased by 7.6 percent annually on average between 2010 and 2018. More than the 3.5 percent annual growth rate from 2000 to 2009, but less than the 12.5 percent annual growth rate from 1990 to 1999.
The University of Pennsylvania and the Texas A&M University System were the greatest victors over this era, going from 11th to 7th and 8th respectively. Some of the wealthiest colleges have had to make big adjustments to their endowment management due to poor performance.
Harvard, for example, said in 2017 that it will let off around half of its 230-person team due to poor investment results.
University endowments have been a major business over the past 30 years, as you can see. Students, lawmakers, and the general public are more involved in the discourse about their management, purpose, and social influence today.
This is a positive development. There was a recent surge of protest from university administrators over the 2017 Tax Cuts and Jobs Act, which levied a 1.4 percent tax on net investment income of the largest endowments. Protesting students elsewhere on campus called on their colleges to withdraw from fossil fuel firms.
Using these graphics, we may better understand how we came to this place while the argument rages on and endowments expand.