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Comment by underseacables | Hacker News Reader

Must be nice to attend a school with $32 billion dollars in the bank.

There's a joke out there that big universities are just hedge funds that do a little work giving out degrees as a marketing expense.

I could be misremembering this, but wasn't there some drama about five years ago about schools literally investing a lot of their endowment and the like in hedge funds?

I think it is pretty common for schools to let hedge funds manage a large portion of their endowment. Not sure what the reason for drama is.

I think it leaves a bad taste in people's mouth since hedge funds are typically a bit riskier than a savings account.

Hedge funds have targets for volatility and rates of return that they try to meet. Endowment managers take such metrics into account when allocating money across different asset classes. They are most certainly not giving away their entire endowment to buy GME.

The only controversy I can see is whether the returns provided by hedge funds outweigh the management/performance fees they charge.

That's fair, as I said I barely remember the details of this, and I know very very little about how these kinds of investments work.

A savings account is not open to an endowment and will be eroded by inflation. Any university endowment will need to be invested in something riskier.

Surely there is a stable middle ground between a savings account and a hedge fund?

Then hedge funds turn back around and put the money coming from Universities back into MIT kids hands.

It's seriously telling of why Western economies don't grow like they used to.

Money became a hot potato business where nobody has the arrogance to say "Ok, I will do this on my own"

The and Bill Gates and Mark Zuckerberg of today aren't leaving Harvard anymore.

I think the story went:

1. Hedge funds donate to endowments

2. Endowments invest back into hedge funds

3. Hedge funds list endowments as investors in their marketing

4. Clients invest with HFs thinking endowments must have done their due diligence.

This has to potential to be "chilling."

When I was a student at some big state school in 08-09 I overheard some profs talking amongst themselves about how the endowment had fallen by a third. I really wasn’t keyed in at the time to stonks- I was just trying to party and pass my classes, but my ears stood up for that one.

I guess almost any large store of money is going to be invested in the market tho

I've always thought of it as running an education side-business for tax purposes

They have investment management companies now. MIT has MITIMCO; Yale has the Yale Investment Committee.

This feels just weird to me. I can understand having some money in the bank as a cushion etc, but tens of billions of dollars? Aren't these institutions supposed to further education and spend whatever resources they have for that purpose instead of hoarding and running a hedge fund style investment program?

Universities stopped being about education when 1) they became a replacement for on the job training and 2) activists began the “long march through the institutions.”

Today they are more akin to NGOs than schools.

IMHO large endowments are less of a distraction to the purpose of the university than NCAA sports are. The Ivy League simply shut down sports completely during COVID time, which was certainly a better idea than the dozens of colleges who got as many students on campus as they could and then had to send them home within months or (!) weeks. If voters want third-class universities without endowments to continue to exist, they need to elect politicians willing to support those universities with public funds.

I think if you asked these universities they would say that they are taking the very long term view. (For instance the one I went to has been around for 800 years already.) If you are thinking on a timescale of centuries then you want to treat your funds as capital, so you spend your investment income on research, scholarships, building maintenance and other educational goals, but you don't eat into the capital or in 200 years you'll be in a bad place financially. And if your funds are sizeable then investing them and managing them is a big job that you probably don't want to outsource.

Slightly off topic, but I attended a higher-ed conference a couple years ago and the administrators are all scared about 2025. The birthrate took a hit in 2008 and has never recovered. Peak enrollment will be 2024 and then diminish for the foreseeable future.

The expectation is that top tier schools will be fine, just less selective, but the B- and C-tier schools are going to suffer. I suppose they can make it up in international enrollment--that wasn't discussed.

I had a friend who attended Yale Photo MFA, one of the most prestigious art programs in the world. They still had to pay all the costs of printing and their windowless studios were in a dank basement of an old gymnasium.

suffering enables certain bonding -- art students are often massively, embarrassingly entitled

source: I was an art student

I went to a Yale arts open house one time, and all the studios I visited had daylight and were about the size of a 2-person dorm room. Different departments with different budgets?

Maybe they could start paying property taxes.

It’s funny, if they earn 2% per year that’s $640M.

With 12k undergrads at $60k, that’s $720M.

Seems like they should just stop charging tuition altogether.

That's not how endowments work.

I'm 99.9999% positive that what you suggest would be illegal, and would land the administrators in prison.

As a lawyer once explained it to me, if person X gives organization Y some amount of money Z for purpose W, then spending even a penny of Z on purpose Q is felony fraud.

I could be wrong, but that's how it was explained to me.

Restricted gifts exist, but it's wrong to state categorically that the existence of restricted gifts precludes spending any endowment income on tuition. GP is also simplistic - not all the endowment income is available to cover operating expenses - but is directionally right. Lots of scholarships and the like offered by schools are transfers from the endowment to the operating budget mediated through a 'lower' tuition bill for the student. A relevant number to look at is the average income per student (money + loan proceeds) to the school - usually that's much, much less than the stated cost of attending.

I’m sure there are exceptions based on the gifts, but I doubt all $35B have such restrictions.

Also it seems odd that a large number of donors would have restrictions that prevent covering tuition and expenses of teaching.

Where do you think the tech industry would be without the endowment funds of universities? They almost single handedly gave rise to VCs in the 80s/90s -=-> fast forward to today.

Not in the bank. In a basket of investments that doesn't entirely align with Yale's mission statement.

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