Opinion piece in the NYTimes

Quote:But under [author's] proposal, 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. Donors would see the tangible benefits of philanthropy. Only fund managers would be worse off.

The proposal in the article is that universities with endowments over $1B should spend 8% per year on educational activities. With that in place in 2014, Rice would have spent over $440,000,000. Perhaps someone could list the actual expenditures.

The solution to high fund management fees is to find a manager who charges a lower percentage, not spending the fund down so the total is lower.

This author would advocate reducing property taxes by burning down the block to reduce property values.

Does Rice use an external hedge fund to manage the endowment? Or do they do so with a more in-house management team? Hedge funds are pretty notorious for not regularly outperforming index funds, so why would we be wasting money paying a large fee to some hedge fund manager who isn't adding any extra value to our endowment?

The Rice Management Company manages the endowment. The head is a Rice alumna.

http://investments.rice.edu

The opinion piece suggests increasing the minimum required annual payout from university endowments from 5% to 8%. In the second to last paragraph the author proves what a bad idea this is and proves false the overall conclusion that only money managers would be hurt.

Quote:Think about it this way. In 1990, Yale’s endowment was worth about $3 billion. If my suggested spending rule had been in place, it would be worth about $10 billion today, instead of $24 billion.

8% of $10 billion << 5% of $24 billion. If the 8% rule had been in place since 1990, today's Yale students would clearly be worse off.

here, to me, is the important part:

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.


His assumption seems to be that the 83% of the contribution that did not go directly to students did not benefit the students. I do not agree.

Sadly, "New York Times editorialist thinks money grows on trees" is not news.

How about another idea. As I understand endowments, money donated to the endowment is often dedicated to a specific purpose, and that money then goes to that purpose in perpetuity. What if Rice as an institution said that if you donate to the endowment for some such purpose, maybe 5% of the growth in that endowment (either investemnet or interest) must be diverted to endowment growth that funds general scholarships, and maybe 2.5% to athletics. Effectively, the overall endowment growth may be the same, but the ability to subsidize student scholarships should also increase over time. I think that this could be sold to contributors by way of saying that these endowment donations will also help ensure that the overall health of the university benefits as well.

By way of example, if a given endowment is $100mm and grows by 8%, 5% is spent for the purpose of the endowment, then the endowment the following year should be $103mm. What I'm saying is that about 7.5% of that $3mm growth (i.e. $225,000 ... effectively %0.225 of the endowment in question) be diverted to another endowment, so the endowment itself would only grow to $102.8mm at the end of the year. For 50 such endowments (total $5bbn), the combined scholarship/athletic endowments would gain about $10mm each year.

edit: as a side note, the NYTimes article's author is a law professor in San Diego. I'm surprised the flaw of the $10bbn vs. $24bbn counter-argument escaped him.

(08-19-2015 11:17 AM)georgewebb Wrote:  Sadly, "New York Times editorialist thinks money grows on trees" is not news.

They have been recently publishing some astonishingly stupid op-ed pieces as well.

http://www.nytimes.com/2015/06/07/opinio...loans.html

Summary: A dude goes to a private school, takes out a bunch of loans, decides to be a writer and thus feels like everyone else should pay for his education and defaults.

As I understand it, Rice spends more of its endowment on a percentage basis than most if not all of its peer institutions... one reason why it is hard to keep pace with endowment/revenue growth at these other schools (i.e. if we're spending it, we're not growing it as much, and if we're not growing as much, we have less cash to throw off).