“Who do you think received more cash from Yale’s endowment last year: Yale students, or the private equity fund managers hired to invest the university’s money?,” asks Victor Fleischer in the New York Times.
It’s not even close.
Last year, Yale paid about $480 million to private equity fund managers as compensation — about $137 million in annual management fees, and another $343 million in performance fees, also known as carried interest — to manage about $8 billion, one-third of Yale’s endowment.
In contrast, of the $1 billion the endowment contributed to the university’s operating budget, only $170 million was earmarked for tuition assistance, fellowships and prizes.
Fleisher calls for a change in the Higher Education Act:
But the amount universities pay to private equity reveals the deeper problem: We’ve lost sight of the idea that students, not fund managers, should be the primary beneficiaries of a university’s endowment. The private-equity folks get cash; students take out loans.
As part of the reauthorization of the Higher Education Act expected later this year, Congress should require universities with endowments in excess of $100 million to spend at least 8 percent of the endowment each year. Universities could avoid this rule by shrinking assets to $99 million, but only by spending the endowment on educational purposes, which is exactly the goal.
Today’s Question: Should universities be required to spend more of their endowment on students?