Are Trustees Too Focused On Investments to the Detriment of the Educational Mission?

Here is a link to an article about university endowments, followed by my comments and some interesting links.

http://dealbook.nytimes.com/2013/01/07/dartmouth-controversy-reflects-quandary-for-endowments/

What worries me the most about the size of university investment funds and its effects on Board members is not just that there may be conflicts of interest, but that some university endowments have become so huge that the focus of the Board may no longer be on education but on investing.  In my experience, I believe if that happens, an attitude begins to filter down from the top.  Money and revenues become important to Deans, then to Department Chairs, then to faculty.  Revenues become more important than education.  I have actually seen a Dean appear very upset if just a few of their students decide to change majors in a way that might hurt the Dean’s bottom line – so much so that the Dean doesn’t even seem to care if the students cheat, as long as they stay in the program, whether or not that is good for the student, or society.

Back to Endowments

If you want to see how big these endowments can become, below are links to the financial statements of two schools, Duke and Princeton.  Duke has a medical school which complicates the issue a little but Princeton doesn’t.  I’m not making implications about either of these schools.  I just want to make it clear how big the university business can be.

Here is Duke: https://www.dtmi.duke.edu/website-administration/files/20111005dukeuniversityannualreport2010-2011.pdf

Notice that in 2011, Duke’s assets increased by 2.1 BILLION.  (See page 3 of the Annual Report.)  The return on investments was 1.3 BILLION.  It looks like they did spend about $450 MILLION of this on the operations of the university.  The graph on page 6 shows that their investments have grown from $3.7 BILLION in 2002 to $9.1BILLION in 2011.  A question is, “How much of this goes to the educational mission of the university?”  (By the way, there are lots of ways for that money to go to the educational mission.  As just one example, one could go against today’s grain of “happy students” and “good USNEWS rankings”, risk popularity, and deliver the education the faculty knows it could deliver.  I don’t know if Duke does that or not, but,from my experience, very few places do.)  Anyway, to answer the question of how much goes to the educational mission, look at Princeton.  That’s because since they don’t have a medical school, it is easier to read their financial statements.

Here is the link to Princeton’s financial statement: http://finance.princeton.edu/princeton-financial-overv/report-of-the-treasurer/2010-2011.pdf

Princeton’s investment earnings (not investments, just investment earnings) was over $3BILLION.  Their annualized 10 year return was 9.8%.  Their total operating expenses were $1.3BILLION.  They distribued $700 Million of the $3BILLION in investment earnings to their operating expenses.  (Apparently, some of this went to help students pay for college.  Good for Princeton.)

I hope this makes it clear that money can be taking trustees eye off the ball.  Universities need financial expertise, but the bottom line is not the bottom line for a university – at least it shouldn’t be.