Trusting U.: Examining University Endowment Management
Christopher J. Ryan, Jr., Trusting U.: Examining University Endowment Management, 42 Journal of College & University Law 163-217 (2015).
54 Pages Posted: 11 Sep 2015 Last revised: 13 Dec 2018
Date Written: September 9, 2015
In the 21st Century, university endowment funds — the sum of a university’s endowment asset portfolio — have become robust and position universities as major economic market participants; universities now occupy a deeply integrated role within national and international economic markets as both creators of and reactors to extra- and intra-market forces. Thus, managing a university’s endowment is both a big business and an increasingly competitive and complex endeavor.
The volatile economic climate of the last decade disrupted the long-held principles that guided endowment management for over fifty years. As a result of the Great Recession, the endowments at the top American schools, posting seemingly limitless gains from the 1990s to the mid-2000s, faced significant losses across a variety of investments. The lasting impact of the effects of the Great Recession on educational endowments that is still being felt today demands real and practical change in development, investing, and endowment management practices. Now, more than ever, as university endowments approach recovery, universities and their endowment managers should model investor responsibility, transparency, and accountability. To the extent that a measured model for university endowment growth can realize steady appreciation in market value and remain more stable in the face of adverse economic factors like those pervasive during the Great Recession, at the very least, it should be considered as a viable alternative to the total-return approach.
This article aims to illuminate the endowment management practices that resulted in this unprecedented growth and loss to endowment value on a national scale. Part I of this article examines the history of university endowments in America and provides a primer on the function of university endowments. In Part II, this article introduces the legal requirements of universities and their endowment managers that have sprung up as a result of the historical economic crises that university endowments have weathered. Part III furnishes data on the effect of the recent economic recession on university endowments, examining returns under a hypothetical alternative investment strategy that would have resulted in greater appreciation in market value and increased market stability between FY2004 and 2014 for half of the universities in the study sample, and also discusses the prevailing, though useless, cause of action by means of which donors may challenge a university’s endowment spending, establishing a correlation between economic recessions and challenged gifts to universities in the American courts. Finally, Part IV offers recommendations for universities and their endowment managers to navigate uncertain waters in the modern context and articulates a sensible, sustainable university endowment management standard.
Keywords: Higher Education, Higher Education Law, Higher Education Finance, Endowments, Endowment Management
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