University Endowments Research Articles

A Higher Power in Higher Education: An Exploration of Endowment Taxes, the Establishment Clause, and College Affordability

Institutions of higher education in the United States have enjoyed a broad tax exemption for hundreds of years. In 2017, however, Congress imposed an excise tax on certain colleges’ and universities’ endowment revenue as part of the Tax Cuts and Jobs Act (Act). The endowment excise tax is not scheduled to sunset in 2025 alongside other provisions of the Act, but members of Congress have begun to revisit the issue of whether and how to tax the nation’s educational institutions. This Note examines two endowment tax proposals’ attempts to exempt religious colleges and universities from heightened endowment excise taxes. It argues that although taxing college and university endowments is a possible legislative tool for making higher education more affordable for more Americans, exempting religious schools from such taxes both runs counter to this goal and violates the Establishment Clause of the U.S. Constitution. If Congress chooses to expand college and university taxation, it should do so in a way that effectively addresses the college affordability crisis and treats religious and secular institutions alike.

Endowment asset allocations: insights and strategies

Using monthly data from 1997 to 2023, we construct mean-variance optimized portfolios of common university endowment asset classes, including domestic equity, international equity, global bonds, hedge funds, private equity, real estate, and natural resources. We find substantial variation in optimal allocations to these asset classes across subperiods. Some asset classes are substantially more persistent in receiving allocations than others, while some asset classes rarely receive sizable allocations at all. Our results highlight the relevance of asset allocation in portfolio performance and may inform future decisions by institutional investors and endowment portfolio managers.

Analysis of International Carbon-Neutrality Campus Cases -A Case Study on Research Universities in the United States-

This study aims to contribute to the spread and promotion of discussions on carbon-neutral campuses by examining cases of carbon-neutral campus development in major research universities in the United States (Harvard, MIT, Stanford, UC Berkeley). To achieve this, an analysis was conducted on the carbon emissions status, climate conditions, carbon-neutral campus goals and strategies, emission quantification status, and progress of each university. The background for achieving carbon-neutral campuses at each university was explored, and the possibility of adoption in domestic universities was investigated. The universities effectively reduced greenhouse gases using PPAs and cooperative governance systems to create carbon-neutral campuses. PPAs were funded via government grants, university endowments, and fund creation. Sustainability departments were established, engaging internal and external stakeholders in carbon-neutral planning. In particular, the sustainability offices of each university demonstrate leadership both in reducing carbon and improving overall quality of life by setting goals related to reducing water consumption, promoting health, culture, food, and connecting with local communities. Korean universities face challenges in reducing building emissions, with limited use of mechanisms like PPAs. Thus, Policy backing is vital for procuring renewable energy. Additionally, although some domestic universities have ESG committees or sustainability committees, there are limitations in their roles, authority, and member participation. Thus, for the creation of carbon-neutral campuses and transition to sustainable society, it is imperative to establish relevant governance structures and systemic climate/environmental education, research collaboratively for institution value and talent development.

Application of the Modified Organic Benchmarks Model in Assessing Performance of University Endowment Portfolios

Application of the Modified Organic Benchmarks Model in Assessing Performance of University Endowment Portfolios

Investing in Your Alumni: Endowments’ Investment Choices in Private Equity

AbstractWe investigate the role of alumni ties in university endowments’ decision to invest into private equity funds. Based on a sample of 1,590 commitments made by 189 U.S. endowments into 613 funds during the period of 1995 to 2017, we show that endowments are more likely to invest into funds that are managed by the alumni of their own alma mater. This finding is more pronounced for less prestigious and less private equity experienced university endowments. Thus, our results are not only dominated by institutions with a larger proportion of active alumni in the private equity industry. Furthermore, we observe that alumni ties are not associated with better performance compared to other endowment investments where such a tie does not exist.

Benefits of Funding Tertiary Education in Nigeria

This paper discussed the benefits of funding tertiary education adequately in Nigeria. Secondary data collected from print and online publications were used for the paper. The paper concluded that adequate funding of tertiary institutions in Nigeria will lead to sufficient funds in the various higher institutions, development of infrastructural facilities, employment of adequate staff, increment in salaries and welfares packages of staffs, reduction in brain-drain problems, prevention of strike actions in the institutions, attraction of international lecturers, research development, improvement in international ranking and attainment of an effective staff training programme. The paper suggested increasing investment in tertiary education. Tertiary institutions should be allowed to charge tuition fees within the parameters set by the government, but the Education Bank needs to be established to offer federal government-backed loans to students who may require them. Federal, state and institutional scholarship awards to help indigent students to pay tuition. Government institutionalized endowment funds for universities to expand their pool of funds. Tertiary institution should use their alumni to generate more revenue and give them incentives to contribute to their university endowment programmes. The government should institutionalize a new model of funding for tertiary education that needs to be developed in a way that will set objective parameters for the allocation of funds from the tertiary education trust fund (TETFUND) based on verified outputs in teaching, research and community service,

Portfolio Choice with Endogenous Donations - Modeling University Endowments

University endowments differ from other institutions in that donation income and spending rates are of equal importance to asset allocation decisions. Our paper develops an optimal endowment framework with endogenous donations income through a feedback dependence based on investment performance. We investigate both substitution and wealth effects due to incomplete markets and nonlinear donation risk. Looking at empirical data on actual US endowment practices, we validate our donations processes. Large endowments take riskier positions. However, this effect weakens with increasing donation risk, documenting another form of the substitution effect empirically. Spending rates are time varying and determined by relative investment opportunities and the corresponding interaction with endowment size.

The Endowment Model and Modern Portfolio Theory

We develop a dynamic portfolio choice model with illiquid alternative assets to analyze the “endowment model,” widely adopted by institutional investors, such as pension funds, university endowments, and sovereign wealth funds. In the model, the alternative asset has a lockup but can be liquidated at any time by paying a proportional cost. We model how investors can engage in liquidity diversification by investing in multiple illiquid alternative assets with staggered lockup expirations and show that doing so increases alternatives allocations and investor welfare. We show how illiquidity from lockups interacts with illiquidity from secondary market transaction costs resulting in endogenous and time-varying rebalancing boundaries. We extend the model to allow crisis states and show that increased illiquidity during crises causes holdings to deviate significantly from target allocations. This paper was accepted by Bruno Biais, finance. Funding: S. G. Dimmock gratefully acknowledges financial support from the Singapore Ministry of Education [Grant R-315-000-133-133]. N. Wang gratefully acknowledges support from CKGSB Research Institute. J. Yang gratefully acknowledges the support from the National Natural Science Foundation of China [Grants 71772112, 71972122, and 72072108], Innovative Research Team of Shanghai University of Finance and Economics [Grant 2016110241], and Shuguang Program of Shanghai Education Development Foundation and Shanghai Municipal Education Commission. Supplemental Material: Data are available at https://doi.org/10.1287/mnsc.2023.4759 .

The University and Democracy: A Response to “Dewey, Implementation, and Creating a Democratic Civic University”

The University and Democracy: A Response to “Dewey, Implementation, and Creating a Democratic Civic University”

The Well-Endowed University: Philanthropy and Financialization in Higher Education

Abstract: This paper offers a brief history of the ways in which finance capital and university endowments worked together to produce a fully financialized higher education system, one in which academic priorities are shaped by the imperative to raise funds in an arms war between research universities to promote their own rankings. This paper also provides an analysis of how post–Reagan era tax reforms shaped and strengthened universities as philanthropic, not-for-profit organizations that courted wealthy people for donations in order to bolster their endowments while allowing these donors to benefit from generous tax write-offs. The academic research priorities of prestigious contemporary American universities are driven by the need to increase donations both for targeted public-private partnerships and for financial speculations facilitated by the growth of endowments. An increasingly stratified system of higher education and an increasingly donor friendly institution, the contemporary university has also been indispensable in building the power of private equity in the post-industrial phase of contemporary capitalism.

Governance of Endowments in Saudi Public Universities

This study aimed to identify the concept of university governance and the concept of university endowment governance and to uncover the most outstanding challenges that face university endowments when implementing governance concepts. To achieve these goals, the study used the descriptive survey approach that relied on interviews as a tool to collect data. The number of respondents reached (20) respondents from (16) Saudi universities in addition to an interview with the vice president of the Private Endowment board, and the study reached several results, the most important of which are: The activation of university-governance endowments including the issuance of legislations that organize university endowment work and achieve the desired objectives of its establishment. The results of the study also revealed a set of existing challenges facing university endowments in Saudi Arabia, and the results included some of the contributions that help in overcoming these challenges. The study recommended emphasizing the role of university-governance endowments and revealing the best practices of governance locally and internationally that lead to the effectiveness of university endowments in Saudi Arabia, and working to encourage community contributions in university endowments, spreading the culture of its programs, and raising awareness of the reality of its governance.

An Empirical Study on the Impact of College Sports on Future University Endowments

An Empirical Study on the Impact of College Sports on Future University Endowments

Perceived and Ideal Inequality in University Endowments in the United States.

Whether and which university to attend are among the most financially consequential choices most people make. Universities with relatively larger endowments can offer better education experiences, which can drive inequality in students' subsequent outcomes. We first explore three interrelated questions: the current educational inequality across U.S. universities, people's perceptions of this inequality, and their desired inequality. Educational inequality is large: the top 20% of universities have 80% of the total university endowment wealth while the bottom 20% have around 1%. Studies 1 to 3 demonstrated that people underestimate university endowment inequality and desire more equality. These perceptions and ideals were mostly unaffected by contextual factors (e.g., salience of endowment consequences, distribution range) and were not well explained by participants' demographics. Finally, Study 4 revealed that learning about current endowment inequality decreased tolerance of the distribution of university wealth. We discuss the implications of awareness of educational inequality for behaviors and educational policies.

How Does Human Capital Affect Investing? Evidence from University Endowments

Abstract We examine the links between human capital and endowment investing. Harnessing detailed information on university endowments, we find that higher asset allocations to alternative assets accompany higher levels of human capital in the endowment’s investment process. Moreover, high levels of human capital are linked to larger returns, even on a risk-adjusted basis. The improved investment outcomes arise because endowments (i) capture higher returns that can accompany alternative assets, (ii) select or have access to high performing managers, and (iii) minimize fees by accessing funds directly rather than through funds of funds. Our measures of human capital include expertise in alternatives on governing bodies, the presence of a chief investment officer, and the size of the investment staff. Finally, we conduct a novel survey of endowments and confirm that human capital is central in facilitating alternative investments.

Are Investment Managers Worth Their Keep? A 7-year Evaluation of Active and Passive Investment Performance of a University Endowment

This study examined the financial performance of Schreiner University’s actively managed endowment and compared the performance to a hypothetical passive investment strategy. From 2014 to 2020, the actively managed endowment produced a cumulative return of 71.7%. In comparison, the passive, index-based portfolio produced a cumulative return of 72.9%. The actively managed portfolio outperformed the passively managed portfolio in four out of seven years but underperformed overall. The performance results of the assets classes were inconsistent throughout the seven-year period. Additionally, a passive strategy of 60% US equities and 40% US bonds would have resulted in a cumulative return of 98.9% over seven years.

Doing Well by Doing Good? – Venture Capital Mission Investments by Charitable Nonprofit Foundations and University Endowments

Doing Well by Doing Good? – Venture Capital Mission Investments by Charitable Nonprofit Foundations and University Endowments

The Effect of College and University Endowments on Financial Aid, Admissions, and Student Composition

The Effect of College and University Endowments on Financial Aid, Admissions, and Student Composition

Investment Strategies and Tools of Foreign and Russian Universities

In the context of the increasing competitiveness of the scientific and educational environment, the emergence of parallel educational systems, and the instability of budgetary spending on education and science, university administrators are faced with the task of finding a balance between the commercial and academic needs of universities. For Russian universities, the issues of diversifying financing and increasing investment activity are of particular relevance. This issue is crucial for entrepreneurial universities, which face the acute problem of resource provision for scientific and engineering problems. This encourages universities focused on applied problem-oriented research and commercialization of results to expand and diversify their funding sources, including through the implementation of new investment strategies.This study aimed to analyze the volumes and models of foreign universities’ investment activities and assess the prospects for reproducing such investment practices in Russian universities.It is shown that leading foreign universities successfully combines scientific, educational, and innovative activities with investment while using a wide range of tools and professional management companies. In the last decade (2011–2020), they have been seen as participants in mergers and acquisitions, the objects of which are most often university startups. As a result, universities have high incomes, new strategic partners, and the geography of investors is expanding. It is noted that most domestic university endowment funds have insufficient funds for investment activities, which makes it expedient to create a University Fund Fund as a new financial instrument for the development of academic entrepreneurship in the country’s regions.

The safety of speculation …

AbstractDoubtless writing tongue-in-cheek to the Estates Committee of King’s College in 1938, Keynes remarked that it was safer to be a speculator than an investor. In the 1920s when first assuming responsibility for the College endowment, he had been a speculator, experiencing a remarkable conversion in the early 1930s to become a genuine long-term investor. Viewing the development of portfolio practice through Keynesian lenses, we demonstrate the essential continuity in conventional practice from Keynes’ time to the present day, the enduring characteristic being the treatment of uncertainty as if it were risk. Current practice is technically sophisticated, manifested in the reliance on benchmarks and risk controls to such an extent that we can refer to the fetish of benchmarking. In contrast, Keynes’ indirect, allusive, indeed elusive, approach embodies a unique insight—one that has been totally obscured by the conventional emphasis on ‘capital appreciation and depreciation generally’.

A cross-national investigation of psychological factors of donor behavior: the case of university endowment funds

PurposeState funding is being reduced for higher education institutes (HEIs) is linked to several checks such as performance-based incentives (Hagood, 2019). This forces HEIs to look for other options for funding. Endowment funds are now becoming the main source of revenue for HEIs (Sörlin, 2007), largely provided by alumni. Thus, this study aims to examine the factors that lead to donor behavior in terms of university endowment funds.Design/methodology/approachBased on a sample of 627 participants in the survey from public universities in the Kingdom of Saudi Arabia (KSA) and 625 from public/private universities of the United States of America (USA), the authors conducted a cross-sectional survey-based analysis. Hypotheses were tested with regression analysis.FindingsThe results revealed that in the USA, donors with substantial prestige within the institution are more likely to contribute to the endowment fund; however, in the KSA, this relationship was insignificant. Additionally, this study found that participation, brand interpretation and satisfaction positively impact identification with an organization, leading to donor behavior.Research limitations/implicationsThis research has successfully identified psychological factors for endowment funding; however, mediating or moderating variables affecting donor behavior should also be considered. Further, this study considers only two countries, the KSA and the USA; therefore, a larger cross-cultural context warrants more investigation.Practical implicationsOverall results revealed several means through which the administrators and practitioners may efficiently manage and increase university endowment funds flow. This study's novelty is to conduct a cross-national investigation and identify the psychological factors of donation behavior toward university endowment funds, providing an opportunity for HEIs to understand the psychological factors in detail and motivate their alumni to be one of the important sources of funding even in developing countries.Originality/valueMany psychological factors underlie alumni's engagement in volunteerism and donation activities, especially in cross-national settings. Following social identity theory, this study explored identity-based donor behavior in terms of supporting universities through endowment funding.