(05-18-2017 07:35 AM)mturn017 Wrote:  I'm no legal expert but if their endowment came from funds that they themselves generated and not from outside donors as is typical, then there's probably no real restrictions on the money (maybe minimal). So what makes it any different than having the cash in operating funds (invested or not but as has been mentioned it be stupid to not having it earn something)? It seems they just decided to announce they had a billion dollars. Or maybe more to the point a billion dollars that they no longer needed to fund current capital projects.

they are having it earn something, but if they are using it to pay for projects and need it to be liquid and or they need to make sure the money is there to pay for the project then it greatly limits the investments and the returns on those investments they can make

they would have it in Tbills paying next to nothing and in high quality bonds that pay next to nothing because there is little to no risk and because the value of the bond is unlikely to fall like a stock would or if it does fall it will not fall as far as fast and you can always hold the bond and gain the interest payments until the bonds go up in value and you sell

and as long as the bonds are yielding at or near your borrowing cost you are OK

the last thing you want is to have $900 million in Apple, Exxon, and whoever else's stock and watch them go down 10% in value or 20% in value just when you need to sell to pay off a project or to start a new project you have planned

so you are limited to investments that have little chance of falling in value or that at least pay a dividend at or near your borrowing cost so you can hold those investments until a better time to sell if you need to sell

this as opposed to a true endowment that you have set up to only spend from 4% to 5% of a 3 to 5 year rolling average of the corpus of the endowment and those expenses paid from that have some flexibility built in

then you can make longer term investments in a much broader portfolios of investments from stable longer term, to real estate to possibly some higher risk or shorter term investments trying to catch an upswing or a down swing and do some hedging with gold or silver or similar

then with the low pull of 4% to 5% and the 3 to 5 year rolling average of the corpus as a basis of that 4% to 5% spend you are protected from market ups and downs

you simply cannot invest the same if you are going to pull $90 million out of $900 million this year to build a new building or start up a new set of degree programs because if you take a 10% hit in investments and then still pull out the $90 million for the project you are down from $900 million to $720 million

you invest to protect the $900 million and then pull out to spend and you are at $810 million plus say 1% or 2% that you earned off of those very low risk investments you were holding your liquidity in

there is not a chance in hell you are going to get 4% from a bank when they can't even make loans at 4% right now to most home owners

that is why places like Japan and others have actually gone to negative interest rates in the recent past because the cost of taking in money and holding it in very very low risk investments in a slow growing or even a deflating economy and servicing the account means no profit or even an expense for the bank

because again the bank simply cannot take risk like even a very safe average long term investor can because of liquidity needs and because there is no "hey sorry your bank balance went down 8% bad stock market and all you know"....and even more so in tougher economic times is when people come for their cash