"This most recent study strengthens the case for reviewing the investment and payout policies of endowments in the context of tax reform. Taxpayers and students deserve to understand what they're getting in return for the tax benefits awarded to these institutions. These endowment managers should consider the challenge presented by the President in his state of the union speech and expand educational opportunities by making college more affordable for more students
"It's good to see that university endowments are starting to recover. Unfortunately, the recoveries aren't leading to significantly higher payouts. There are more than 62 institutions with endowments greater than $1 billion and more than half of them are private, tax-exempt charities. The trends in endowment payout rates show that, even in a good economy, the wealthiest institutions hardly ever exceeded a payout of 5 percent. The trends also show that my concerns about a 5 percent payout rate being a ceiling rather than a floor are valid. Private foundations have to pay out at least 5 percent every year, and that's become a ceiling for them.
"These same billion-dollar endowments are also making significantly greater investments in alternative strategies when compared to their smaller counterparts. These alternative strategies include illiquid investments such as hedge funds and private equity funds, many of which are likely offshore. They also include investments in commodities and distressed debt. These strategies may be legal but they're not necessarily responsible. And when the economy declined and students and their families needed the most tuition assistance, many of these institutions raised tuition and lowered endowment payouts because they couldn't liquidate their investments in these alternative strategies."
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