Yale spent approximately $300 million last year — and more than $1 billion over the last decade — caring for its endowment riches, according to a News analysis of University financial records.
The disclosure of that spending comes out of a bevy of data the University submitted this week to the Senate Finance Committee, several of whose members have assailed Yale and other elite universities in recent months for not spending enough of their wealth on financial aid and tamping down tuition increases. In January, committee members asked Yale and 135 other institutions to provide them with details about their policies regarding endowment spending, investment management and financial aid.
Over the last decade, Yale’s endowment has more than tripled, to $22.5 billion. But, the University’s disclosure reveals, that gain came at a significant price: Last year, the fees it paid to external managers — investment specialists who run many of the funds in which Yale invests — amounted to more than four times what Yale spent on undergraduate financial aid, for example, according to News estimates.
But administrators admonished that the University has its priorities in the right place. After all, they said, the endowment posted a return an estimated 20 times greater than the cost of investing it.
“The number is high just because of the total size of the endowment,” University President Richard Levin said. “Our costs of management are extremely low by national standards on a percentage basis.”
Over the last decade, the University spent around $100 million in salaries, benefits and other expenses for its own employees who manage Yale’s endowment, including Chief Investment Officer David Swensen, the University’s highest-paid employee. But that was barely a drop in the bucket compared to the whopping $1.4 billion in fees paid to external managers over the last decade, according to the analysis conducted by the News.
And while Yale’s endowment has soared, so have its management expenses: In the fiscal year that ended June 30, Yale spent about $275 million on external managers and another $20 million to bankroll the Investments Office, the News analysis found.
That spending amounted to 1.46 percent of the average market value of the endowment over the course of fiscal year 2007. Princeton, meanwhile, spent 1.37 percent of its endowment, according to its Finance Committee missive; Harvard was more opaque with its numbers, reporting that it has spent between 1 and 2 percent over the last decade.
Those schools are among only a few dozen of the 136 institutions that had responded to the Finance Committee by last week, according to Jill Gerber, a spokeswoman for Iowa Sen. Chuck Grassley, the committee’s ranking member and the most vocal critic of University endowment spending. In the fall, Grassley floated the idea of requiring universities like Yale to spend at least 5 percent of their endowments annually — a mandate that struck fright into the Ivy League.
The committee, which wrote to Yale and the other schools Jan. 24 with 11 questions for the schools to answer, requested a reply within 30 days, a deadline the University did not meet. Yale requested an extension because of the vast amount of data the University was asked to gather, University Spokeswoman Helaine Klasky said last week.
“That’s okay with us,” Gerber told the News last week. “We’ve been flexible about the deadline in the interest of getting thorough responses.”
Indeed, Yale’s response was thorough. The 7,400-word reply addressed everything from the University’s financial-aid policies to the bonuses paid to Swensen.
And, throughout, the University implicitly warned against mandating any minimum endowment spending. In a letter to Grassley and Finance Committee Chairman Max Baucus, Democrat of Montana, Levin noted that between 1968 and 1982, Yale’s endowment plunged from $4 billion (in 2007 dollars) to $2 billion “as a result of weak investment performance and payout policies that were insufficient to preserve real value.”
“More recently, Yale has benefited greatly from remarkable investment performance under newer strategies and revised payout policies,” Levin wrote, “but future returns are uncertain.”
Still, the University announced in January that it will loosen its conservative spending policy, implementing a 4.5-percent minimum spending rate for the first time. This year, Yale spent 3.7 percent of its endowment; next year, overall, such spending will rise by about 40 percent, to $1.15 billion.
That announcement — and the unveiling of new financial-aid initiatives at Harvard, Yale and Stanford — drew praise from Grassley, Republican of Iowa.
“I hope we’re seeing a trend and a shift in thinking,” the senator said in a statement last month. “Spending a little more on students won’t break the bank for well-funded schools.”
And well-funded Yale is. Only Harvard, with $34.9 billion in its coffers, has a larger endowment than Yale. Harvard is almost twice the size of Yale.
But maintaining that endowment is expensive. On average, the University has spent the equivalent of 1.24 percent of its endowment annually on managing the fund over the last decade, according to the disclosure to the Finance Committee. More than 90 percent of that spending went to external managers.
But while it might seem to the layperson that the University is getting fleeced by its hired help, that could not be farther from the truth, Levin said.
“To get access to the very best funds that we’re invested in, the going rate is typically about 2 percent,” he said. “We actually get better terms with many of our managers than the norm.”
The News’ calculations of how much the University spent to manage its money are imprecise. In its letter, the University provided the cost of managing the Yale endowment as a percentage of the endowment’s average market value over the course of each of the last 10 years.
But the University only releases its year-end endowment market value, not its annual average. The News calculated the annual spending assuming that its average market value was equivalent to the average of its opening value and closing market value; it was not immediately clear whether the University computed the spending rates with that methodology.