October 17, 2005

Endowment Grows

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Cornell University’s endowment increased to $3.75 billion as of August 2005, according to Laura Toy, interim vice president of alumni affairs and development, marking an increase from $3.2 billion last year. The increase adds approximately $30,000 to the rate of endowment per full-time student, which jumped from $165,054 for fiscal year 2003-2004.

Despite the positive trend, however, Cornell administrators and faculty acknowledge that the University is far behind when compared to the endowments of its Ivy League peers.

“In the last few years, Cornell’s endowment per full-time student has been one of the lowest of the Ivy League,” Toy said.

A report issued by the Division of Planning and Budget in May 2005 listed the endowment per full-time student for selected institutions. Princeton University topped the list with $1.48 million per student, with Harvard University in second with $1.16 million per student and Yale University in third with $1.13 million per student. This year, Cornell’s endowment is approximately $190,000 per full-time student. Cornell is of comparable size to Harvard, with nearly 20,000 full-time undergraduate and graduate students.

One of the reasons behind Cornell’s lower endowment is how effectively the funds can be invested. This year, the endowment’s long-term investment total return was 13.6 percent, an increase from 13.4 percent last year. Princeton’s most recently reported return was 17 percent; Harvard’s return was 19.2 percent; while Yale’s was 22.3 percent. More importantly, Cornell’s peer institutions have significantly higher total endowments: Princeton, Harvard and Yale have $11.2 billion, $25.9 billion and $15.2 billion respectively.

“Richer institutions can make bigger risks [while investing]. The amount of risk depends upon whether you can really afford to take substantial losses,” said Prof. Ronald Ehrenberg, director of the Cornell Higher Education Research Institute. “In the end it is more likely to yield higher rates of return.”

A second reason that Ehrenberg attributes to the lower endowment is the range of household incomes of students at Cornell. A significant amount of the endowment comes directly from alumni giving, and Cornell ranks comparably high on the list. The Sun reported in March that Cornell’s total contributions totaled $386 million, ranking third behind Harvard and Stanford University.

“Students coming from wealthier families are more likely to make wealthy contributions when they graduate,” he said. “Cornell admits and enrolls many more lower-income families than our competitors do. On average, our students are not as wealthy as their Ivy counterparts, and they have less family wealth to contribute to the University.”

According to Ehrenberg, about 16 percent of Cornell students receive the Pell grant, a financial aid grant that is awarded to students who come from households earning less than $45,000 a year. Meanwhile, he said, for most of our peers, “less than half of that percentage of students” receive the Pell grant.

Third, the endowment’s growth depends on how much of it is spent each year.

“Richer universities tend to spend less [percentage-wise],” he said. “While Cornell probably spends a greater fraction of it each year.”

As reported by the Daily Princetonian, Andrew Golden, president of Princeton University Investment Company, noted the importance of existing endowment funds when it came to growth.

“In most environments, [schools with bigger endowments] do better, including some of our closest peers,” Golden said. He explained to The Princetonian that such schools are more capable of affording their own investment staffs to oversee the financial services companies that manage the endowment on a day-to-day basis.

According to Ehrenberg, Cornell began building its endowment much later than most of its peers, thus giving those schools a head-start. Because Cornell is made up of endowed and contract colleges, it has had different expectations due to the state-funded assistance that the University receives.

“Cornell is the only Ivy institution to receive public support for some of its undergraduate colleges,” he said. “Graduates of the contract colleges believed that the state was paying for their educations and so giving to the University was not a big deal. Only in the last 25 years, as support from the state has been cut back, has the public part of the university aggressively began to do fund raising from its alumni.”