Amay Tewari

In its budget update for the 2024-25 fiscal year, the University announced that the budget for the 2026 fiscal year will be “far more constrained” due to low endowment returns and a challenging economic climate. 

In the 2024 fiscal year, the investment return on the Yale endowment, the largest source of the University’s revenue, was 5.7 percent. This marked the third consecutive year the investment return was below the 8.25 percent return needed to sustain the current level of endowment spending. 

“Yale’s budget will have enough endowment revenue to pay for existing expenses but not new ones,” Provost Scott Strobel wrote in a message to the Yale community. 

According to the budget update, new initiatives or investments will require new sources of revenue. Absent such sources of revenue, such initiatives or investments may need to be deferred or reconsidered. The announcement sets expectations for what funding for faculty and staff may look like ahead of when schools and units submit budget proposals to the University next year. 

When asked about the condition of the endowment’s financial stability, Marcella Rooney, head of business affairs and administration at the Yale Investments Office, said that the University’s investment portfolio is constructed with a long-term focus, and that success is measured in decades rather than any single fiscal year’s return. 

Accounting professor Rick Antle also stated that it is to be expected that endowment returns will occasionally be below target, but that the more important question is whether expectations about future returns have changed. 

“We believe that over long periods of time, we’ll be able to achieve our goal of investment returns,” Rooney wrote to the News. 

She clarified that Yale has returned 10.3 percent per annum over the past two decades, outperforming a typical 70/30 stock and bond portfolio by 3.8 percent per year on average. 

Both Antle and Rooney noted that interest rates continue to move in flux and that the current economic climate remains uncertain, which has the potential to impact future revenues. 

Beyond current economic conditions, Antle stated that the federal government’s attitudes regarding allowing indirect cost recovery in federal grants and a potential tax on the endowment would be “by far” the largest concern for the budget. 

“These are, of course, not things that would have been factored into the choice of the spending rule and the university has not experienced anything like them,” said Antle. 

On March 5, the University announced that as it creates the 2026 fiscal year budget, it expects to reduce spending on faculty raises, faculty and staff hiring, campus construction and general non-salary expenditures as it braces for funding cuts from the Trump administration. 

“At this point, we do not yet know when many of the possible federal actions impacting institutions of higher education, including Yale, will take effect,” University President Maurie McInnis wrote to the News. “We also do not know the scale of their impact. What we do know is that actions such as a possible increase to the endowment tax and changes to the university’s F&A rate could have profoundly negative consequences on Yale’s finances.”

McInnis emphasized that because the current landscape remains uncertain, the University approach is to remain thoughtful and measured, hence why it has not yet instituted a hiring freeze. 

According to McInnis, the university’s current actions include asking schools and units to engage in contingency planning should federal policies be enacted that significantly impact university revenue. This includes reviewing capital projects to consider where delays may be warranted, anticipating more modest salary increases for faculty and staff, and asking deans and university leaders to slow non-salary expenditures — particularly multi-year commitments.

“Yale has a big endowment, but it is also a big institution,” said Antle. “I think in terms of flows of resources, and with big flows, small changes in percentage terms can translate into very large dollar amounts. Yale has a lot of resources, but if activities have to be adjusted, it won’t be easy.” 

The Yale Investments Office is located on 55 Whitney Ave.