Columbia’s Endowment

How does a gift to the endowment work?

Endowment gifts do not fund programs directly, but are instead invested to generate income that in turn provides annual support for the beneficiary programs in perpetuity. By providing a dedicated stream of income—in support of a scholarship fund or professorship, for example—an endowment gift ensures the stability of that scholarship fund or professorship. Endowing an existing program, fund, or professorship, rather than a new one, is doubly beneficial because it frees up money that Columbia can redirect to other areas of need. Donors can work with fundraisers to identify how to structure an endowment gift to best support beneficiaries of the donors’ choosing.

How much spendable income does Columbia’s endowment generate each year?

At its current value of more than $7.1 billion (as of June 30, 2007), the endowment can generate upwards of $355 million in spendable income each year—a significant amount, but still a relatively small share of Columbia’s annual budget. In FY2008, less than 13 percent of the University’s $2.66 billion budget will be funded by investment income from the endowment, a proportion half or even one-third that funded by endowment income at wealthier peers such as Princeton, Harvard, and Yale.

With an endowment worth almost $7 billion, why does Columbia need more money?

Having exceeded $7.1 billion at the close of FY2007, Columbia’s endowment may sound like plenty. But keep in mind that only a small fraction of its value may be spent each year, generally in the form of income generated by investments. Remember also that between Columbia’s 16 schools, four campuses, almost 3,500 faculty, more than 10,000 staff members, and more than 24,500 students, the annual operating budget is $2.66 billion. Finally, as at most universities, much of Columbia’s endowment is restricted to specific purposes.

How does Columbia’s endowment compare with that of our peers?

In recent years Columbia has risen to seventh in overall endowment among U.S. universities, but there remains a significant drop-off after the top five. Moreover, those few schools with significantly larger endowments are in fact our closest academic peers, the very ones with which we compete for students and faculty. They include Harvard ($34.6 billion at the close of FY2007), Yale ($22.5 billion), Stanford ($17.2 billion), and Princeton ($15.8 billion).

Tuition is so expensive. Doesn’t it cover most expenses?

In a word, no. The actual cost of educating most Columbia students greatly exceeds tuition, so Columbia ends up subsidizing the overwhelming majority of students—even those who pay full freight. That said, because of the relative size of our endowment, we do rely much more heavily on tuition income than do our better-endowed peers, and, since tuition cannot go up infinitely, we have to compete with less. Our New York City location, too—while key to Columbia’s identity—makes doing business expensive.

Why is Columbia’s endowment so much less than that of our peer institutions?

Through much of the 20th century, Columbia’s assets were concentrated in Manhattan real estate, mostly in the land beneath Rockefeller Center, which was sold in 1985. The annual return on this property—fixed by long-term leases—provided a less competitive return than the managed investment portfolios of our peers.

The University also historically relied upon a small circle of donors for fundraising needs rather than cultivating a broad base of alumni. The Columbia College Fund, for example, started in 1953, years after other college funds (cf. Yale 1890, Harvard 1925); the first University-wide capital campaign was not realized until the 1980s.

Endowment-building is obviously a long-term process, but a concerted effort to build Columbia’s endowment today will help solidify the University’s future.

Why doesn’t Columbia just spend more of the endowment?

Income generated by Columbia’s endowment can be either spent or reinvested, but the principal—the endowment itself—is never spent down. Each year, Columbia’s Trustees determine what share of this investment income to spend.

In budgeting for FY2007, the Trustees decided to spend an amount equivalent to 4.4 percent of the overall endowment’s market value. As a matter of policy, this sum usually does not exceed 5 percent of the endowment, a share consistent with the target range for our peer institutions and many other nonprofit organizations. (In FY2007, for example, the average payout by the 76 colleges and universities with endowments above $1 billion was also 4.4 percent.)

This rate of distribution, also called the spending rate or payout, is capped for a number of reasons:

  • To preserve Columbia’s purchasing power in the face of inflation
  • To allow Columbia to withstand a bad market period
  • To grow the overall endowment more quickly

How is the endowment invested?

The formation of the Columbia Investment Management Company (IMC) in 2002 reflected the University’s strengthened commitment to improving the long-term investment management of the endowment with the highest professional standards.

The IMC pools most of Columbia’s assets, including endowment gifts, into a single fund that enables it to take advantage of different investment styles and vehicles to provide a higher total return over time while maintaining an acceptable level of risk.

For the fiscal year ending June 30, 2007, the total net return on the managed assets component of Columbia’s endowment, after manager fees, was 23.1 percent. (Compare this to a 25.2 percent return for the MSCI World Equity Index and 6.1 percent on the Lehman Aggregate Bond Index over the same period.) Performance the previous two years, FY2006 and FY 2005, was also strong, with net returns of 18.4 percent and 17.7 percent, respectively.

Remember, of course, that investment performance can and will vary from year to year, and that Columbia administrators cannot budget in perpetual expectation of such high returns. But that said, under the Columbia Investment Management Corporation, our endowment returns now compare quite favorably with those of our peers and other not-for-profit organizations. Indeed, Columbia’s endowment returns over the past three years place it well in the top quartile of University investment performance.

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© Columbia University 2007