Universities' tax-exempt giga-endowments spend more on hedge fund managers than on education


#1

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#2

Is he just discussing elite institutions, or all research universities, because all he talks about really are the elites. What about the rising costs at public institutions? I’m unclear whether his proposal will do any good at the places where the vast majority of people get their education?


#3

If it helps, this seems to be what’s been happening at University of Michigan over the last 20-ish years. It was big local news when their endowment hit the billion dollar mark, but that was many moons ago.


#4

My real question is this, how well did these fund managers out perform the market as a whole?

Working backwards from the figures in the story, using the numbers from Yale and the “2 and 20” rule mentioned it looks like Yale got around a 20-25% return from the investment. Subtracting the fees listed the net return is around 15-18%. I could be totally wrong on these numbers as I’m not an accountant, and the article is short on raw numbers and the article uses a lot of ‘about $X’ as opposed to accurate numbers.

Still it looks like their fund managers beat the market even after fees. I can’t really fault them for picking an option that gave them more money to use. I don’t see a strong correlation between how many grants/scholarships/aid they provided students and how much the spent on investment management. If they chose to instead invest in an index fund any maybe got 10-15% return after fees instead would they be in a better position to lower tuition costs?


#5

I think the point is that the $$$ is at this point NOT going for scholarships and lowering tuition, that they are in fact just lining pockets of already rich investors as it stands. What makes you think that will change without some sort of intervention?


#6

Again, my point is just this, if they have $6b, and they hand it to some guy that turns it into $8b and that guy takes $500m for him self, they are left with $7.5b. If they take that same $6b and drop it in a lower cost investment option they may have only $7b at the end. If they drop it in a bank account they may get $6.2b instead.

Which options results in more money for the university? If this university was doing a great job of student aid would we feel any problem at all about the use of hedge funds to make more on their endowment funds?

The article is attempting to compare the cost of managing an endowment with the amount of money spent on student aid, without providing the context of what the management cost provides. This is a disservice to the reader, it makes blood boil at the irresponsible waste of money that could have gone to students!

Except, it looks like from reverse engineering the raw numbers based on what is in the article it’s the exact opposite. If they dropped the henge fund managers and went with index funds or even lower return options they would at the end of the year have even less money available regardless of what it was spent on. Which likely would mean even less spent on student aid.

There is a lot shady and disgusting about how the higher education system is run, but this articles main theme is a bit like taking issue with a surgeon because he cuts people open. Endowments like these fundamentally work by investing the money and then using the profits from that investment to fund the organizations yearly expenses.


#7

It might be true that it nets them more and could be used to fund more students, but that doesn’t necessarily follow that they actually willl use it to lower costs of an Ivy education for more people - because the reality seems to be that they haven’t. The question is less what makes more and more how can they use the money they make to do the most good.


#8

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