Demystifying Endowments

Abstract

[Excerpt] This year, decreases in the financial markets and reported large declines in the values of endowments at many institutions have led to numerous reports about how colleges and universities are slashing budgets, freezing faculty and staff salaries, cutting faculty and staff employment levels (often by attrition, but sometimes by layoff), and slowing down or stopping building projects. In spite of all of this attention there is a general lack of understanding regarding endowments—what they are, how they are used, how they are invested and the investments managed, how decisions are made regarding how much to spend from them, and why the reported declines in endowment values are having such profound effects on higher education. This paper addresses such issues.