For the fiscal year ending June 30, Columbia’s endowment produced returns of 5.5 percent on the assets in its portfolio, down 3.6 percent from the University’s trailing 9.1 percent 10-year returns.
Nevertheless, the value of the endowment—or a combination of liquid holdings and long-term investments—has reached an all-time high. Totaling $11.26 billion, assets are up from last year’s $10.95 billion, and up from the return rate of 3.8 percent in the previous fiscal year. These totals come during COVID-19, a pandemic that was expected to drag markets into a recession not unlike the 2008 housing crisis.
At the onset of COVID-19, the University braced for massive financial fallout, though Columbia’s budget has historically stayed afloat in economic downturns. Although peer institutions depend more on their endowments—35 percent of Harvard University’s operating budget relies on its endowment—Columbia’s greater reliance on tuition, private gifts, and clinical revenue has made its budget more resilient in times of crisis.
In an interview in late March addressing concerns about the pandemic’s financial impact, University President Lee Bollinger said, “When there’s a downturn, Columbia tends to suffer less because other places are more dependent on their endowments.” He continued, “No single year should be a test of how your strategy is doing. … I feel very confident about the future performance endowment.”
Many private universities endowments have taken massive hits as a result of the recession, as most endowments are smaller and more likely to depend on the highly volatile public stock market.
Columbia’s endowment returns still trail those of its peer institutions, with the University seeing a 3.8 percent return during the 2019 fiscal year, the lowest of the Ivy League. At the end of the 2020 fiscal year, Harvard reported 7.3 percent in returns up from 6.5 percent last year, and Yale University reported 6.8 percent in returns up from 5.7 percent last year. A number of other schools’ endowments, like those of Harvard and Brown University, reached historic highs.
Another explanation for the success of many private university endowments is the kind of investment strategies that those in charge of the endowments are able to employ. According to the National Association of College and University Business Officers’ NACUBO-TIAA 2019 Study of Endowments, endowments over $1 billion had only 11.2 percent of their investments in U.S. equities, while those with $100 million or less had significantly more exposure.
Patrick Bolton, the Barbara and David Zalaznick professor of business, said the relative success of massive university endowments are, in part, due to the government’s handling of financial programs after the 2008 housing crisis.
“A lot of the programs the Federal Reserve activated were programs that had been introduced during the financial crisis of 07-09,” Bolton said. “When the crisis hit, the Federal Reserve had to innovate a lot and create new programs but this time around it had all these programs ready to be deployed.”
In 2009, Ivy League universities fared much worse; Harvard and Yale reported that their endowments had declined in value by 30 percent. With an investment loss of 16 percent, Columbia’s endowment fell relatively little in comparison as less was invested in private equity, which had declined sharply in value during the recession.
When addressing the investment strategies of large private universities, Bolton also said that these universities have larger, more diverse investments than their smaller counterparts due to the size of their endowment.
“[Large private universities] have a bigger equity versus fixed income investment and they probably have a bigger alternative investment portion,” Bolton said. If the American economy had failed, large university endowments would not suffer huge losses, according to Bolton. Their investment strategies ensure that their endowments are secure and stable, independent of the American economy.
Joshua Goodman, associate professor of economics at Brandeis University, cites multiple sources responsible for keeping the American economy afloat. Goodman said the home-based business models of companies like Amazon and Netflix allow them to profit from the pandemic and that the pandemic has not caused a normal recession.
“Because there aren’t many other assets to put money into (like government bonds, which currently have very low yields), many people plow their savings into the stock market, which then rises [and] ... though COVID’s decimated low wage workers’ employment, lots of people can work remotely, so this is not a typical recession,” Goodman said.