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posted by martyb on Friday August 21 2015, @12:43AM   Printer-friendly
from the course-correction dept.

Victor Fleischer writes in the NYT that university endowments are exempt from corporate income tax because universities support the advancement and dissemination of knowledge. But instead of holding down tuition or expanding faculty research, endowments are hoarding money. Last year, Yale paid about $480 million to private equity fund managers for managing about $8 billion, one-third of Yale's endowment. In contrast, of the $1 billion the endowment contributed to the university's operating budget, only $170 million was earmarked for tuition assistance, fellowships and prizes. Private equity fund managers also received more than students at Harvard, the University of Texas, Stanford and Princeton.

Fleischer, a professor of law at the University of San Diego, says that as part of the reauthorization of the Higher Education Act expected later this year, Congress should require universities with endowments in excess of $100 million to spend at least 8 percent of the endowment each year. Universities could avoid this rule by shrinking assets to $99 million, but only by spending the endowment on educational purposes, which is exactly the goal. According to a study by the Center for College Affordability and Productivity a minimum payout of 5 percent per annum, would be is similar to the legal requirement for private and public foundations. "The sky-high tuition increases would stop, and maybe even reverse themselves. Faculty members would benefit from greater research support. University libraries, museums, hospitals and laboratories would have better facilities," concludes Fleischer. "We've lost sight of the idea that students, not fund managers, should be the primary beneficiaries of a university's endowment."


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  • (Score: 4, Interesting) by Non Sequor on Friday August 21 2015, @01:10AM

    by Non Sequor (1005) on Friday August 21 2015, @01:10AM (#225648) Journal

    Interest rates are low so the amount of money that can be spent without spending down the endowment (generally regarded as a bad thing) is low.

    Higher risk investments can offset this to an extent, but that's also regarded as a bad thing.

    The expensive investment managers are supposed to pay for themselves in that they should have the improvement in return should justify the fee, and generally the fee is structured to be performance based. Note that this arrangement is slightly dubious since there is a lack of consistency in investment manager performance records and it may be easy to overestimate the extent to which the fee is actually earned. Basically, there may be some cases of endowments overpaying for fancy-pants investment advice, but the room for improvement on that front is limited.

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  • (Score: 2) by captain normal on Friday August 21 2015, @03:59AM

    by captain normal (2205) on Friday August 21 2015, @03:59AM (#225693)

    Having to pay investment firms for managing the huge endowments, doesn't seem to speak well for the universities schools of business. Unless of course, there are some shady back room deals going on.

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    • (Score: 3, Insightful) by FakeBeldin on Friday August 21 2015, @07:51AM

      by FakeBeldin (3360) on Friday August 21 2015, @07:51AM (#225749) Journal

      Let's put that in some perspective: "Having to pay people to handle IT does not speak well for the university's school of CS."
      Yeah, erm... no.

      • (Score: 2) by tibman on Friday August 21 2015, @08:04PM

        by tibman (134) Subscriber Badge on Friday August 21 2015, @08:04PM (#226003)

        I remember most of the comp labs being run by students. There was one full-time guy "running the show" who ate like two pizzas a day and rolled his chair around randomly. After the infrastructure is setup the maintenance isn't difficult. The knowledge to set it up initially however..

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    • (Score: 2) by Non Sequor on Friday August 21 2015, @11:58AM

      by Non Sequor (1005) on Friday August 21 2015, @11:58AM (#225792) Journal

      That used to be considered sensible thinking, although today it handcuffs you to a passive investment strategy, which may or may not be a great loss.

      The investment managers are basically overseeing the implementation, execution and reporting of a strategy for searching for and exploiting investment opportunities. In computer science terms, this is more similar to the types of problems studied in "no free lunch theorems" plus oversight infrastructure. Expectations for reporting make this hard to do as a part time job.

      The alternative is to spend less on searching and just invest the way the average investor invests. This strategy may be better if most of the known effective strategies are overfished, but if everyone goes passive, active strategies become more viable.

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