Scarcity Amidst Wealth: The Law, Finance, and Culture of Elite University Endowments in Financial Crisis

52 Pages Posted: 8 Aug 2009 Last revised: 24 Mar 2011

Peter Conti-Brown

University of Pennsylvania - The Wharton School

Date Written: August 6, 2009


Abstract: The financial crisis of 2008 left elite university endowments with 30% less value, leading these universities to respond with dramatic budgetary restructuring. While endowments had received probing national and Congressional attention in the months prior to the crisis, that attention has largely given way to the conventional wisdom that universities are no longer able to meet their budgetary needs because of these endowment losses. This wisdom has taken hold despite the fact that elite universities still sit atop multi-billion dollar endowments designed, at least in theory, to provide a cushion in times of financial distress.

This Article explores this apparent puzzle by looking at the legal and financial restrictions placed on endowment spending. The Article finds that, arguments to the contrary notwithstanding, the law does not meaningfully restrict elite universities in their spending largely because the law does not apply to unrestricted funds that compose almost half of elite universities’ endowments. A stronger explanation is financial: elite university investment in illiquid assets means that universities cannot cash out endowments to stabilize their budgets because of an inability to access those investments. I argue, though, that that explanation is still inadequate: illiquid investments likely account for a minority of a university’s endowment, and some elite universities have tapped these illiquid funds at “bottom-of-the-market” prices. The Article articulates a different theory of endowment value: universities use their endowments as a symbol of prestige and a point of competition between peer institutions. This cultural value of university endowments means that universities will strive to avoid endowment liquidation to the fullest extent possible, even in times of crisis.

Keywords: university endowments, financial crisis, UMIFA, UPMIFA

Suggested Citation

Conti-Brown, Peter, Scarcity Amidst Wealth: The Law, Finance, and Culture of Elite University Endowments in Financial Crisis (August 6, 2009). Stanford Law Review, Vol. 63, No. 5, p. 699, 2011; Rock Center for Corporate Governance at Stanford University Working Paper No. 99. Available at SSRN:

Peter Conti-Brown (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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