The Growth of Endowment Wealth
THE GROWTH OF endowment wealth per student at wealthy schools took off in the mid 1990s. We will see that endowment assets grew at wealthy schools prior to the 1990s, but no faster than enrollment. This suggests that the new endowment investment strategy of asset growth succeeded in overcoming depreciation and inflation pressures. Exponential increases in endowments, however, did not occur until the shareholder value fueled stock market growth since the 1990s.
Endowment wealth per student
We can see large and growing disparities in the rise of endowment wealth at the richest schools by breaking down endowment spending per full time equivalent (FTE) student into percentiles for public and private institutions that enrolled undergraduates. FTE students estimates here include graduate and professional students whose education may also be supported by endowment wealth. Figure 1 shows annual endowment spending per FTE student for selected percentiles of private undergraduate enrolling schools. This reveals that for US undergraduate enrolling institutions in the 99th percentile for endowment wealth per student, annual spending per student from endowments rose gradually increased by 751 percent from $9,724 in 1977 to $92,736 in 2012. In the 95th to 99th percentiles, spending per student grew by 297 percent from $8,275 in 1977 to $32,868 in 2012. By contrast, even in the 80 to 85th percentiles, per student endowment spending rose from just $2,622 in 1977 to just $7,579 in 2012.
Table 2 shows endowment and enrollment data by school for the 24 schools in the top 5 percent for endowment wealth in 2012. For comparison, the table also shows the schools’ endowment and enrollment data for 1977. The schools include a familiar list of 9 prestigious research universities and 14 selective liberal arts colleges along with the Olin College of Engineering that was founded in 1997. Of 2012’s 24 top schools for endowment wealth, 19 also reported data for 1977. Of those 19, all but four were already among the top 24 schools for endowment wealth in 1977. Across the 19 institutions with data in 1977, endowment spending per student increased by 494 percent between 1977 and 2012.
If we exclude Cooper Union as an outlier because it has used its endowment to pay extraordinary debt service costs since 2009, we see that Ivy League research universities and Stanford occupy the top four slots. At the very top, Princeton increased endowment spending per student by 717 percent from $11,787 to $96,295 even though it has no law school, business school, or medical school—graduation education programs which can carry higher costs per student. Pomona had the highest endowment spending per student for a liberal arts college in 2012 at $49,799, but reported no data in the 1977 endowment survey. Just behind Pomona among liberal arts colleges, Williams increased its endowment spending per student by 510 percent from $6,319 to $38,540. At the bottom of the top 5 percent for private endowment spending, Claremont McKenna spent just $21,025 per FTE student. Most of the increase in endowment spending per student in the top 5 percent occurred through the growth of endowment assets that support such spending. Meanwhile, Table 1 shows that FTE enrollment including graduate and professional student enrollment increased just 25 percent from 1977 to 2012 across the 24 schools in the 2012 top 5 percent.
We can see the rapid overall growth in endowment wealth more easily in Figure 3, which breaks out total endowment assets for the 2012 top 5 percent of schools over time by research universities and liberal arts colleges. The five schools that reported no endowment data in 1977 are excluded so that total endowment asset increases do not simply reflect the increase in schools reporting endowment data. Combined, the 2012 top 5 percent schools that had $17.8 or 53 percent of the total $33.1 billion in endowment assets reported in 1977. But among the schools that also reported endowment data in 1977, the 2012 top 5 percent schools would have $126.2 or 62 percent of the reported endowment assets in 2012. In other words, endowment wealth became even more concentrated between 1976 and 2012.
Figure 3 also reveals endowment assets grew throughout the period since 1977 as the new investment strategy of asset growth was purported to be implemented. But endowment asset growth significantly accelerates after 1996. We see an 8 percent average annual increase in total endowment assets for liberal arts colleges in the top 5 percent during the 19 years between 1977 to 1996. These schools saw endowment assets increase from $2.5 billion in 1977 to $6.3 billion in 1996. Research universities in the top 5 percent also saw average annual asset growth of 5 percent during this period with an overall increase from $13.6 billion in 1977 to $30.2 billion in 1996. Endowment asset growth then dramatically accelerated, particularly for the research universities, in the following decade from 1996 to 2007. Liberal arts colleges endowment assets increased 12 percent on average annually from $6.3 billion in 1996 to $14.3 billion in 2007. Research university endowment assets increased 30 percent on average annually from $30.2 billion to $129.1 billion.