Abstract
Investment losses in equity markets in the past three years, and the prospect of a truncated recovery, have left endowed institutions in a double bind. Colleges and universities that in the 1990s enjoyed the luxury of self-replenishing investment portfolios “net of inflation”now face hard choices between the elimination of vital projects and programs on the one hand and irreversible damage to core endowment assets on the other. Simulations assuming median projected returns, average institutional spending rules, and 2%-3% inflation show endowment spending is likely to decline for two to three more years, before beginning a slow recovery. Nominal spending rates for fiscal 2000 will not be supportable again until at least 2017. The imposition of Draconian spending policies looks very likely at many institutions, especially those with the smallest endowments.
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