Endowment Growth and Decline at Private Colleges, 1999-2009

Abstract

Against the background of the debate over appropriate endowment spending rates for colleges, it is of interest to examine exactly what has happened to private colleges’ endowment market values over the decade from 1999 to 2009. In the aggregate, where do private college endowments stand in 2009 relative to 1999? How does the picture change as one moves from a perspective based on nominal values to a perspective based on real, inflation-corrected values? How do the results differ across colleges? Does growth vary in a way that is systematically linked to starting endowment size as of 1999? To the extent that growth varies, how much of the variation is attributable to differences in endowment investment returns and how much is attributable to other factors?Given the dismal investment returns of 2009, it is not surprising that the decade from 1999 to 2009 was one of dismal results for private colleges’ endowment market values. Yet, the path to this characterization of market values is more complex than a brief reference to 2009’s investment returns.For the 221 private colleges included in this paper, a first step on that path is that, in the aggregate, their nominal endowment market value increased by 55.6% from 1999 to 2009. While the 55.6% may initially appear to constitute a healthy increase, such a characterization is undermined by several considerations.First, the aggregate endowment market value is driven by the strong growth at the colleges with the largest starting (as of 1999) endowments. The “rich did get richer” relative to the less rich, and the median percentage increase in nominal endowment market value at the 221 private colleges from 1999 to 2009 was 21.9%.Second, the median change in real, inflation-corrected endowment market values for the 221 colleges was -18.2%.Third, a common perspective is that the purchasing power of existing endowment should be sustained over time without the benefit of new gifts. Including the impact of such new gifts, real endowment market value should increase over the course of a decade. Adjusting for a conservative assumption of a new gift rate of 2.0% of annual starting endowment market value, the estimate (assuming also that the purchasing power of the new gifts is sustained) is that real endowment market value should grow by approximately 21.0% over a decade. The actual median real change of -18.2% stands sharply below this 21.0%.