The University and Financial Predestination
A key sign of the relationship between academia and wisdom (at least in the United States) has been the above-average returns earned by university and college endowments. In August last year Harvard reported a 23.0 per cent return on its $34.9-billion pot of money. In wealthy colleges across the country, the yearly report of the chief investment officer is often the only occasion when professors, tenured and untenured alike, leave aside their personal and philosophical quarrels and join each other in enthusiastic applause. Not out of selfish material interest, mind you, but because in the success of their investment strategies they find vicarious confirmation of their institutions’ ineffable wisdom. What better way of proving one’s excellence? Yes, they are smarter than everybody else and, more importantly, smarter than the market. (Max Weber should have added an appendix on academics to The Protestant Ethic and the Spirit of Capitalism).
Oh well, the era of differential smartness is over. Reports of heavy losses by university endowments are multiplying (see here, here, and especially here). Amherst College announced a drop of 25 per cent in its endowment ($1.6 billion) last year, and other top universities are expected to suffer large losses. Their investment strategies suddenly look mundane. The upshot: the financial crisis is likely to stall efforts, currently underway in Congress, to force wealthy universities to spend a minimun percentage of their endowments on their students.