Phi Beta Cons

Support for My Laissez-Faire Approach on Endowments

After posting yesterday’s Clarion Call with a pro-and-con on the issue of mandating increased endowment spending, I received a supporting e-mail from someone who has a lot of experience in managing endowments. Here is just a small slice of what he wrote:

In short, increasing the payout will, in the long term, lead to decreased funds for students. Typical of Congress, this is a short term political proposal with bad long term consequences. The reason for this is that investment horizons for universities are very different than those for individuals. In 30 years most of the members of Congress will be dead, but the universities will still be running. Because these are endowments they are meant to provide funding in perpetuity, which means their most dangerous enemy is inflation. It’s imperative to invest a great deal of the return back into the fund to beat inflation over, say, 100 years. Applying human investment strategies to institutions that don’t die is a dreadful mistake.

George Leef is the the director of editorial content at the James G. Martin Center for Academic Renewal.

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