Financial Endowment - Financial Operation

Financial Operation

A financial endowment is typically overseen by a board of trustees and managed by a trustee or team of professional managers. The financial operation of the endowment is typically designed to achieve the stated objectives of the endowment.

At universities, typically 4-6% of the endowment's assets are spent every year to fund operations or capital spending. Any excess earnings are typically reinvested to augment the endowment and to compensate for inflation and recessions in future years. This spending figure represents the proportion that historically could be spent without diminishing the principal amount of the endowment fund. However, the financial crisis of 2007–2010 had a major impact on the entire range of endowments globally.

Most notably, large U.S.-based college and university endowments, which had posted large, highly publicized gains in the 1990s and 2000s faced significant losses of principal across a range of investments. The Harvard University endowment fund, which held $37 billion on June 30, 2008, was reduced to $26 billion during the following year. Yale University, the pioneer of an approach that involved investing heavily in alternative investments such as real estate and private equity, reported an endowment of $16 billion as of September 2009, a 30% annualized loss that was more than predicted in December 2008. At Stanford University, the endowment was reduced from about $17 billion to $12 billion as of September 2009. Brown University's endowment fell 27 percent to $2.04 billion in the fiscal year that ended June 30, 2009. George Washington University lost 18% in that same fiscal year, down to $1.08 billion.