You can not possibly convince me that Harvard’s endowment doesn’t trivially have one year of liquidity in it.
I’m sure it’s not structured to handle a 7% annual draw down for the next 30 years. But it’s got plenty of time to restructure if needed.
Spending a billion of it is not just spending a billion. It's spending the many billions it was meant to provide, in interest, over the next decades.
It's extraordinarily expensive to spend it directly, as opposed to spending the income it generates.
You can certainly do it, in a true emergency. But you certainly don't want to make a habit of it.
This seems to qualify for many people though. Less pain than complying in many minds I am sure.
I've seen arguments of this general shape and form many times about this, and yes, this is true. In general, Harvard should not spend down it's endowment when it has other sources of revenue.
I think the issue here is that this _is_ an emergency. Harvard should consider that Federal money gone for the near future and spend and plan to spend as if they will not have it. There is no point in them continuing to exist as an institution if they accede to these absurd demands.
Harvard's endowment returned 9.6% last year, growing the total by $2.5 billion. In the previous year, the endowment returned 2.9%, though the total endowment decreased as the gain was offset by contributions to operating expenses. [0]
In other words, Harvard already operates somewhat from their endowment, and can realize net endowment gains in spite of that.
[0] https://www.harvardmagazine.com/2024/10/financial-report-fis...
The argument isn't that Harvard should never draw from its endowment, like it's saving for retirement or something. The argument is that they shouldn't raid endowments by doing additional withdraws to fund the current shortfall.
The argument I was replying to was actually of exactly this form.
That argument also implied that any endowment spending to cover shortfalls would necessarily be of the principal, but that is also incorrect.
In fact, the White House just responded with a $2.2B funding freeze—an amount that would have been covered by last year's endowment return.
THATS WHAT WHAT THE FIFTY BILLION IS
It’s a war chest that has been carefully cultivated over decades. The fifty billion is the result of a hundred years of investment and management.
If it can’t be spent now then when the fuck exactly can it be spent? In 200 years you’d still be saying “this is the seed corn for tomorrow!!”
I’m not saying burn it down to zero. But the whole fucking point of an endowment is to provide stability during trying times. If you can’t use the interest that has been accumulated now then when the fuck can you??
Their principal is not intended to be spent, ever. The point of an endowment is not to "provide stability during trying times".
The point is to spend the interest that it generates, in normal times, in perpetuity. Which Harvard already does and has always done. Interest from their endowment is already a large part of their revenue. That's what the endowment is for.
Yes, but these are not normal times.
The more it grows, the less risk there is in the future. But if you start spending it below the levels of its returns, that's high risk. And the point is it's supposed to last forever.
You also need to grow it simply to account for inflation and other rising costs.
They’d probably want to reduce spending and hit up donors if they felt they need to power through a four year stretch.
Paraphrasing J. P. Morgan, the man, in the midst of the Panic of 1907 reassuring a banker concerned about dipping into reserves to pay out depositors: "what are reserves for if not times like these."
Eat the seed corn. Fight. Then raise unencumbered donations from the billionaires whose balls haven't fallen off. If Harvard plays this correctly, they could become one of the flag bearers of the legal and financial resistance to Trump.
How much is “enough” money to hoard in an endowment though? We hear lots of arguments about how the concept of a billionaire is itself obscene, why can’t we apply to same logic to institutions? E.g. much like people say “billionaires shouldn’t exist”, perhaps endowments over some similarly arbitrary value shouldn’t exist either.
Harvard doesn't make a profit. It educates students and does research. It sounds like you're arguing Harvard should be broken up or something? But based on what? Is it abusing its power or something?
As for the minority where that is not the case, it also means nobody will have standing to sue if the school decides to stop letting someone who died 200 years ago decide exactly how Harvard's money will be spent.
The other oddity of Harvard's endowment is that each school at the university basically has it's own fund--so that for instance, the Business school and the Law school don't have to worry about money the same way that FAS (the main undergraduate school) does.
At this point, you really do have to question whether each university hire was merit based or not, including the fund managers.
If you are going to claim that they were not hired on merit, and that they are bad investment managers, you'll need to provide a lot more evidence on both points, rather than a "just asking questions" post on HN. Otherwise, it's just snark and not in keeping with HN's ethos.
I would assume that a tax on an endowment would be like a capital gains tax, i.e., taxed on the investment growth. Is the growth 'reserved for a particular purpose'?
>Is the growth 'reserved for a particular purpose'?
It's probably safe to assume donors are competent enough that such glaring loopholes don't exist. After all, the concept of endowments being used as long term savings, rather than spent immediately, isn't exactly a new concept. Failing to take this into account would mean any earmarks are void after a few decades.
>Universities’ endowments are not as much help as their billion-dollar valuations would suggest. For a start, much of the money is reserved for a particular purpose, funding a specific professorship or research centre, say. Legal covenants often prevent it from being diverted for other purposes. In any case, the income from an endowment is typically used to fund a big share of a university’s operating costs. Eat into the principal and you eat into that revenue stream.
>What is more, eating into the principal is difficult. Many endowments, in search of higher income, have invested heavily in illiquid assets, such as private equity, property and venture capital. That is a reasonable strategy for institutions that plan to be around for centuries, but makes it far harder to sell assets to cover a sudden budgetary shortfall. And with markets in turmoil, prices of liquid assets such as stocks and government bonds have gyrated in recent days. Endowments that “decapitalise” now would risk crystallising big losses.
More worrying is the fact that the federal government can inflict even more harm aside from cutting off federal funding:
>the Trump administration has many other ways to inflict financial pain on universities apart from withholding research funding. It could make it harder for students to tap the government’s financial-aid programmes. It could issue fewer visas to foreign students, who tend to pay full tuition. With Congress’s help, it could amend tax laws in ways that would hurt universities.
https://archive.is/siUqm