SeanPavonePhoto via iStockPhoto
What is an Endowment?
A college endowment is a collection of assets that can be used to support the institution’s research, faculty salaries, financial aid, operations, and long-term goals. Endowments usually take the form of an investment fund managed by several investment analysts. The bulk of the funds are built through donations from alumni, philanthropists, and other supporters. Typically, only a small portion of the endowment, typically 4-5%, is spent each year to support institutional goals with the rest reinvested to ensure the long-term success and sustainability of the endowment fund. A key sign that an institution is struggling financially is when a higher proportion of the endowment fund is spent annually to keep the institution afloat.
How Vanderbilt manages their Endowment
The Vanderbilt Office of Investments implements several key strategies to ensure the success of Vanderbilt’s endowment fund. As Head of Private Investments at Vanderbilt’s endowment, Roy Yum explained that the office begins with drafting a Statement of Investment Policy every three years that will guide their investment strategy to align with the goals set by the university administration. To ensure consistent endowment growth, the Office of Investments generally aims to make 7-8% annually from their investments. Vanderbilt’s portfolio has a diversified exposure to equity, credit, interest rates, commodities and real estate through managers and funds. Public securities, including bonds and stocks, are more liquid, but will generate lower returns, while more illiquid assets including venture capital and private equity are more “high risk high reward.” The investment team works to identify, research and select the best partners to invest with to support the mission of the university.
Impact of the Endowment
The university’s endowment growth rate significantly impacts a school’s success, as Yum describes. A large endowment with a high growth rate allows the university to allocate more funds to paying endowed chairs, improving the university’s ability to attract the best faculty. Students will be more keen on attending an institution with reputable faculty to support their academic and professional growth, which results in the university being able to select from the highest quality of applicants. A faster growing endowment also allows for the university to allocate more funds into scholarships, increasing the number of qualified students able to attend without financial burden. This in turn attracts accomplished faculty as individuals in academia desire to teach students with more motivation and potential. This dual relationship is crucial in developing a school’s brand name and reputation.
Comparing Vanderbilt’s Endowment to Peer Schools
In recent years, Vanderbilt has seen unprecedented growth in their endowment fund. From 2018 to 2023, Vanderbilt’s endowment grew by 110.1%, compared to peer institutions including Northwestern University (23.6%), Cornell University (38.8%), and Rice University (15.3%). As Vanderbilt continues to expand, initiatives such as the Dare to Grow campaign will allow the university to invest in its students and the future of the institution. Given the endowment’s unprecedented growth in the past few years, there is much cause for optimism. For the undergraduate level, the university continues to invest in expanding academic resources, funding groundbreaking research initiatives, and increasing scholarship opportunities. For the university overall, the endowment enables it to continue to attract top faculty and students, growing Vanderbilt’s prestige as we continue to ascend the ranks of institutions of higher education.
