Hacker News Reader

Comment by adamson | Hacker News Reader

I think massive endowments (foundations, trusts, universities, etc) are pretty clear effects of a large wealth divide

Most of those endowments are pension funds for teachers and other non-wealthy jobs...

The majority of the stock market is owned by a few funds as well.

Both are individually poor examples of the wealth inequality as a driver of trends in the capitalization of tech businesses...

One is an alternative to the other. And typically the biggest investors/funds/endowments do both as a diversification strategy.

Wondering if these funds may be obligated to work in the interest of their investors vs just maximize dollar value. For example, should a factory worker retirement fund invest in robotic companies that automate workers out of a job? I suppose the argument is that if they don’t someone else will.

What you’re referring to is activist investing, or what is more descriptively known in most cases as activist divesting. Activist groups put pressure on funds to invest in, or divest from, certain assets.

For example, my college’s endowment was invested to varying degrees in the oil/energy industries. A bunch of forestry school grad students organized a “divestment campaign” to pressure the investment office to divest from anti-environment assets. I’m not sure how effective they were in the end, but they sure made a lot of noise.

So yes, endowments/pensions/sovereign wealth funds are certainly obligated to listen to their “constituents” if you will, but only by societal contract. A big enough PR storm should be sufficient to drive investment or divestment, if enough people are emotional and aggressive in marketing their argument.

The interest on university endowments funds financial aid.

> Schools spend an average of a little more than 4 percent of their endowment funds annually.

---

> “Endowments aren’t generally used to lower tuition,” said Richard Vedder, an economist at Ohio University, testified before the House Ways and Means Committee last year. “Typically less than 20 cents of every dollar of endowment income is used for scholarships to lower fees for students. Making college more affordable is not the dominant use of endowment resources.”

---

> Critics note that a lot of endowment money goes toward glitzy student centers, athletic fields and pricey academic buildings.

From here: http://wfae.org/post/colleges-pressured-spend-more-endowment...

An endowment is there to provide investment income over tens/hundreds of years. Spending even 100% of that year's capital gains would be grossly irresponsible. The article you linked is calling for 5% vs. 4%... sure there are probably some institutions being too stingy, but on the whole, taking small distributions is the point.

Spending more than 4% of the endowment would be highly irresponsible. The entire point of an endowment is to not decline in value over time—they should consistently spend less than investment returns annually.

Endowments themselves accrue over time. There's no need to indulge some wealthy person's fantasy of everlasting life through their money, especially after they're dead, when more people will be along to take their place.

I don’t understand. Are you claiming universities should throw themselves on the mercy of year-over-year changes in donations?

The most valuable asset an institution like that has is time. Mere mortals can only start to live on investment income in their twilight years, but universities don’t die. As they get old enough, they could even become entirety self-sustaining.

Harvard's endowment is over $37 billion. Is that enough to be self-sustaining?

What number is enough?

Why would there need to be a limit? Do you imagine that Harvard having a large endowment is somehow depriving others of money? If so, you are fundamentally misunderstanding - endowments are invested in the economy.

A nonprofit institution doing good work should always seek to expand its reach and the extent to which it fulfills its mission. Are you concerned that the American people are too educated, or that too much is invested in research?

Currently, the incentives are to (a) give the fund administrators nice big bonuses, (b) increase the wealth of the organization, and (c) give the donors a kind of lingering life after death from their bequest, thus lots of strings and clauses.

The thing that's missing in this is progressing the goals of the organization itself, its mission.

Universities shouldn't be hedge funds with a sideline in teaching and research.

Increasing the wealth of the institution and giving donors life-after-death are both about serving the goals of the institution. I agree that excessive management fees can be a problem, but universities aren’t selling shares. The hedge fund’s gains serve the university’s mission, not to enrich some investor.

Universities shouldn’t be fundraisers and lobbyists with a sideline for teaching and research. Becoming independently wealthy frees them from that.

He is not arguing usage but existence. The existence of large endowments surely displays wealth inequality, regardless of the utilitarian nature that may result as the outcome.

Large institutions are wealthier than individuals? Large institutions are wealthier than small institutions? Neither of these realities are surprising or concerning in any of the ways that wealth disparity between individuals is.

Reply on news.ycombinator.com