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Higher Ed's Hedgefunds

OK, I got your attention.  That title is admittedly a bit harsh.

But before I talk about the data, there are lots of caveats here, and some background will help.  Last week, NACUBO released its 2021 Study of Endowments, along with lots of data for the public, and more if you are a member.  I used the free data here.  The last person you want to get angry at you is the business officers.  So the first caveat is that NACUBO is much quicker than IPEDS in getting data out, and the IPEDS data I'll use here is a year older, and generally, less rosy than the 2021 FY stuff from NACUBO.

However, the IPEDS data is more granular.  When talking about endowments, that's important.  The university endowment is not just a big pot of money you can spend, nor is the income always available to you to do whatever you want.  Much of the investment return is restricted, that is, the income can only be used for certain things (an endowed chair in the physical sciences, or a center for the study of South American politics, or student scholarships, for instance.)  I've known restricted endowments that cost a university money, by requiring some sort of contribution to the thing that's endowed.  This is the second caveat.

The third caveat is complexity: Some universities have good returns on restricted endowments, and losses on unrestricted.  Others are the opposite.  Some lose money on everything.    Even if you're an accountant, this can get complex.   And, of course, while the fund may have increased by $100M, for example, you generally don't spend it in the same year because it would be almost impossible to.

The fourth caveat is that not all growth is from investment growth.  Some of it is from new money coming in.

The final caveat is volatility.  While investments can go way up, they can also go way down.  An endowment is intended to exist for the university in perpetuity, which can be a long time.

So, with that in mind, I wondered: When does a college or university stop being an institution of higher education, and start being considered an investment firm that runs educational enterprises on the side?  I asked in a tweet what a list of colleges had in common.  I offered a hint that I had been playing with NACUBO and IPEDS data.  And I got some good guesses.  And some bad ones, including things you couldn't tell from IPEDS or NACUBO.

The answer is that all 19 of the institutions listed in the tweet, and on the visualization below, had unrestricted endowment earnings that exceeded the total amount of tuition they collected in the same year.  And, as I indicated, the numbers in FY 21 appear to be mostly higher (by a lot) than in FY 20 (the years shown here.)  Harvard, for instance, had a total return of almost $11B in FY 21. (That should put them on the list easily next year, but for FY 20 they have to settle for a paltry ratio of 0.9).

The column on the left shows the ratio: Princeton, for instance, collected about $133M in tuition in the same year its endowment returned almost $1.5B, or just about eleven times as much.  For Grinnell, it was 1.9, for Stanford, 4.3.

I'll probably dig in a little deeper later, but because the data are reported differently across platforms, and the timing is not great, it may be a while.  And perhaps this will all be less relevant if the market goes down or levels off this year.

What would you like to see?  Let me know, and I'll consider it.


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