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Cash flow. Endowments are used to fund operating expenses. At all but the richest institutions, you need to think of the endowment more like the retirement fu
by throwawaygh 6y ago
Cash flow.
Endowments are used to fund operating expenses.
At all but the richest institutions, you need to think of the endowment more like the retirement fund of a retiree.
You can't just not pay your faculty / demand 50% more tuition / defer fixing a roof leak for a few months just because you were down in Q2, even if you expect to be back up in Q1 of the next year.
- jjk166 6y agoIf you expect to have the money at a future date and you can secure a low interest rate, it makes much more sense to fund operating expenses with debt than lowering future returns. Certainly for the past decade a large institutional investor with significant assets like a university would have no issue securing an extremely low interest rate.
- throwawaygh 6y agoSure. Two things: 1. Almost all colleges and universities use debt to finance capital projects. 2. At least some endowment distribution is tied to restricted gifts.