New study gives clearer picture of how Columbia's endowment lags behind peer institutions

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23 February, 2022

3:49 PM

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Columbia Daily Spectator BY ADAM FROMMER AND MICHAEL VONDRISKA FEBRUARY 22, 2022 While the University's endowment increased by 32.3 percent in the 2021 fiscal year, from $11.3 billion to $14.3 billion, a report released on Friday provides a fuller look at how the University endowment's market value grew the least in percentage among some of the largest university endowments in the nation. The study of 720 participating institutions by the National Association of College and University Business Officers and Teachers Insurance and Annuity Association of America reported that endowments generated an average annual return of 30.6 percent for the 2021 fiscal year, placing Columbia's returns just above the national average. The study found that the average annual spending rate for university endowments for fiscal year 2021 was 4.5 percent. While Columbia maintains a target annual spending rate between 4.5 and 5 percent, the University spent 5.3 percent of the endowment's market value in fiscal year 2021. This contributed a total of $607 million, or 12 percent, of the University's $5.2 billion yearly revenue. Columbia's endowment was the 12th largest in the nation, although Teachers College is listed separately. Northwestern University surpassed Columbia's endowment this year, though Columbia ranked higher than the University of California because the UC system's endowment was broken up by school this year. For the 20 most highly endowed private institutions in the study, Columbia's total endowment value is ranked ninth. Its endowment value per full-time-equivalent student was $553,754. This value was dramatically lower than at most of Columbia's peer institutions—Harvard University, Yale University, Stanford University, Princeton University, and the Massachusetts Institute of Technology all have endowment values per full-time-equivalent student of over $2 million. The University's comparatively low endowment-to-student ratio can be attributed to Columbia's high total enrollment numbers—the highest in the Ivy League. From 2011 to 2019, the University increased enrollment by over 5,000 students, from 28,174 to 33,399, with the sharpest growth occurring in the Graduate School of Arts and Sciences, the Graduate School of Engineering, and the School of Professional Studies. Over the last 10 years, Columbia's average annual net endowment return was 9.9 percent. In the last five years, Columbia's lowest return was 3.8 percent for fiscal year 2019. On the whole, the NACUBO study revealed a less optimistic picture of endowment returns. The 720 institutions in the study reported an average annual return over the last 10 years of 8.5 percent. Some peer institutions spend similar percentages of their endowments, but some other universities with larger endowments can rely on investments to cover a larger portion of their spending. With an endowment of $37.7 billion, for example, Princeton University's investment spending comprised 55 percent of its yearly revenue, allowing the school to rely less than Columbia on other streams of income, including tuition dollars. Columbia's investment spending for fiscal year 2021 encompassed only 12 percent of its revenue, whereas tuition made up 22 percent. Universities across the country are becoming more ambitious about their endowment targets. The standard target for annual average endowment returns has long been 7.5 percent, but the study shows that for fiscal year 2021, the new average goal is now 7.94 percent. This new goal is intended to reflect the average annual return at which an endowment would maintain its value, adjusted for inflation, neither growing nor shrinking. Universities have also dramatically increased efforts toward responsible investment. The study found that over 80 percent of endowments have added environmental, social, and governance (ESG) considerations as part of their investment policies. Columbia has faced scrutiny in the past surrounding its investments in fossil fuels, tobacco, private prisons, and Sudan. Current University policy is total divestment from companies producing tobacco, operating private prisons, deriving more than 35 percent of their revenue from thermal coal, or exploring or producing oil or gas. Columbia lifted its policy of divestment from Sudan on Jan. 20, 2021. In 2011, the University of Pennsylvania's endowment totaled roughly $6.6 billion while Columbia's was roughly $7.8 billion. The University of Pennsylvania's endowment has since surpassed Columbia's and grown to $20.5 billion. Staff writer Adam Frommer can be contacted at [email protected]. Follow him on Twitter @AdamFrommer. Staff writer Michael VonDriska can be contacted at [email protected]. Follow Spectator on Twitter @ColumbiaSpec. Founded in 1877, the Columbia Daily Spectator is the independent undergraduate newspaper of Columbia University, serving thousands of readers in Morningside Heights, West Harlem, and beyond. Read more at columbiaspectator.com and donate here.