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Thread: Duke Endowment

  1. #1
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    Duke Endowment

    A story in the Times on Thursday concerning tax breaks and off-shore hedge funds (I told you I'll read anything.)stated the endowment now is in excess of 7 billion. Google did not provide another source. The most recent figure I saw two years ago approached 4 billion. I would like to know if these figures are accurate and ,if so,the reasons for such growth. Anyone?

  2. #2
    Maybe because:

    The market has done well and the Endowment is tax exempt. Accumulation - Einstein's 8th wonder - compound interest. Also, our fabulously generous alumni making donations to add to the fund.

  3. #3
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    To which endowment are you referring? The Duke Endowment is based in Charlotte, NC. The University is only one of many beneficiaries of that endowment. Duke University has very little control, if any, over the Duke Endowment. Endowment funds on the books of the University are another matter. They are restricted funds that are to be used for a specific purpose, such as an endowed chair in a specified discipline, or a scholarship paying tuition from fund earnings, or a construction fund for a specified building. They don't grow because they are tax free. They grow because they are well invested, and their use is restricted. On the other hand, the Duke Endowment is as well invested, but it functions to distribute its funds to others, Duke University, Davidson College, and many others. So, which one are you talking about?

  4. #4
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    Quote Originally Posted by Jarhead View Post
    To which endowment are you referring? The Duke Endowment is based in Charlotte, NC. The University is only one of many beneficiaries of that endowment. Duke University has very little control, if any, over the Duke Endowment. Endowment funds on the books of the University are another matter. They are restricted funds that are to be used for a specific purpose, such as an endowed chair in a specified discipline, or a scholarship paying tuition from fund earnings, or a construction fund for a specified building. They don't grow because they are tax free. They grow because they are well invested, and their use is restricted. On the other hand, the Duke Endowment is as well invested, but it functions to distribute its funds to others, Duke University, Davidson College, and many others. So, which one are you talking about?
    As a lawyer and fund raiser for a non-profit I am well aware of the difference between the university endowment and the Duke Endowment.I am also familiar with the complex tax laws appling to non-profits as well as the means by which an endowment is grown. What I am looking for is verification of the figures cited and a breakdown of factors by percentages contributing to this remarkable growth.

  5. #5
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    The information I was looking for is in a Duke News and Communications release today. Total Duke investments are 7.5 bilion of which 4.5 is endowment.

  6. #6
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    Close to the Gothic Playground!
    either way this discussion goes, all would agree that we are rather loaded.

    dth.

  7. #7

    tuition?

    If Duke's endowment is really 7 billion perhaps they should stop charging tuition. Think of it this would immediately vault Duke up to the top of the list of coveted admissions. The could do it financially only 25% of the operating revenue comes form tuition and this includes the grad schools, belt tightening and tapping the endowment to a larger extent could do it.

  8. #8
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    Quote Originally Posted by tecumseh View Post
    If Duke's endowment is really 7 billion perhaps they should stop charging tuition. Think of it this would immediately vault Duke up to the top of the list of coveted admissions. The could do it financially only 25% of the operating revenue comes form tuition and this includes the grad schools, belt tightening and tapping the endowment to a larger extent could do it.
    As cowetarock states the endowment funds total 4.5 billion, not 7 billion. The endowment funds can only be used for the purposes for which the endowment funds were created. If they were used to cover tuition for all students, they would last just 11 years. The other 3 billion can be used for anything governance approves, but just like my investments which I consider rainy day funds they are not available for current expenses. I haven't seen Duke financial statements in years, but I would guess that 3 billion is exceeded by the total annual total operating expenses of the University. We don't need less investments. We need more, both unrestricted and restricted. So give more money, y'all.

  9. #9

    tuition?

    I assumed the fund was 7 billion Wikipedia lists it at 4. 5 billion. Lets assume Duke can hit up Melinda for an extra half billion and Duke endowment is 5 billion. It should be able to go tuition free.

    Tuition and fees only represents 25% of income to run the institution this includes graduate school tuition. So total undergrad tuition is under 20% of this fees and room and board would still be charged and then "voluntary tuition" tax deductable could be collected. On top of this aggressive campaigning should increase alumni giving. So I would guess you are left with about 10% or less uncovered which is 180 million or so. I think belt tightening could save 80 million and then an additional 2% from the endowment towards operating costs would cover the last $100,000,000.

    This would propel Duke towards the very top of the academic heap.

  10. #10
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    Quote Originally Posted by tecumseh View Post
    This would propel Duke towards the very top of the academic heap.
    You mean to the very top of the community college heap, don't you? Do you think we could charge the university payroll on it American Express card. The University would be bankrupt in 5 years.

    Look, tecumseh, the endowment cannot be used for any expenditures except those specified when the endowment was created. For example, if Bill gates gave 1 billion to cover the tuition and fees of all undergraduates how long do you think that would last? Six years maybe? I don't have a calculator handy. Not very substantial if that were the purpose for which it was granted, and definitely not a permanent endowment. But what if he said that his gift could only be spent on Central Campus construction? It would still be part of the overall University endowments, but not a penny of it could then be used for tuition.

    And what about the rest, the other 3 billion? What do we think the annual expenses of the University are? I am guessing when I say about 3 Billion. Maybe I am way over the top, but if that is all the money we have in our rainy day fund, I'm worried. How in the dickens are we going to pay the 30 million for fda's cis replacement.

  11. #11

    over the top

    You are way over the top the budget is 1.8 billion but this includes a lot of research money for Duke Med and there is over 500 million in grants and research dollars coming in. The amount collected for tuition and fees is in the 400 million dollar range.

    Most schools feel comfortable spending about 5% of their endowment a year if you assume a 10% annual return you are obviously still growing the endowment if you are spending 5% a year. For a 5 billion dollar endowment this is 250 million.

    But the other fact is Duke is a very inefficient educational system. A friend of mine is the CFO (or similar title) of a small liberal arts school. He and his ilk laugh at the extravagance of the "haves" of the educational world. There is a lot of money that could be saved at Duke IMHO without effecting the educational product.

    It could be done at Duke but it would take a whole different mindset and it would upset the "club" of higher educational elites. I mean certainly Harvard could do it without breaking a sweat.

  12. #12
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    Quote Originally Posted by tecumseh View Post
    Most schools feel comfortable spending about 5% of their endowment a year if you assume a 10% annual return you are obviously still growing the endowment if you are spending 5% a year. For a 5 billion dollar endowment this is 250 million.
    Sorry that I missed the budgeted amount, but that is not really what I was talking about. Budgeted expenses are only one part of the total for the Greater University. I looked everywhere on the web for a copy of the Duke financials, but failed. Let's accept that lower amount though. That means only that my guess as to when we go to empty is out just a few more years. Also, I misstated a couple of definitions. See the reference linked below. Endowment funds are more restrictive than I thought.

    (http://www.finsvc.duke.edu/acctops/a...AcctgCodes.pdf)

    Endowment funds are given to the University with the condition that they can not be spent only the income generated from investing the money can be spent.
    Current Restricted Funds: These funds are given or granted to Duke by outside sources to be used for a specific purpose. Examples: government grants, drug studies, gifts given for scholarships.
    What this means is that there is no way for you to use the endowment funds to pay blanket tuition and fees for the total student body, or even for sub-sets of the student body. This started as a discussion of Duke investments. They were estimated to total 7.5 billion which included 4.5 billion in endowment funds. The endowment funds are moot, you cannot use them. Nor should you use the remaining 3 billion for reasons that I have already stated, rainy day funds, and all that.

    So that leaves with:

    Quote Originally Posted by tecumseh View Post
    But the other fact is Duke is a very inefficient educational system. A friend of mine is the CFO (or similar title) of a small liberal arts school. He and his ilk laugh at the extravagance of the "haves" of the educational world. There is a lot of money that could be saved at Duke IMHO without effecting the educational product.
    You have brought up a new subject about an educational system. I don't know how to respond to that. Can you give me some specifics on the supposed inefficiencies? How would their elimination allow the implementation your plan given the realities of Duke's financial structure?

  13. #13
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    Seattle, WA

    Saving the world, not her alma mater

    Quote Originally Posted by tecumseh View Post
    Lets assume Duke can hit up Melinda for an extra half billion
    Not a safe assumption -- Bill & Melinda are still trying to funnel most of their money through their foundation.

    If you're curious, the Gates Foundation has an endowment of $33B, about $1.6B is from Mr. Buffett.

  14. #14
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    It's really simple!

    Duke has 6,000 undergrads.

    Let's assume all of these would get free tuition under the scheme you're talking about.

    6,000 * 40,000 = 240 million.

    If we need to get 240 million a year, what size does the endowment need to be?

    If we assume the endowment earns interest at 5% a year (good years, bad years, etc), 6 billion dedicated solely towards this project will yield interest at 300 million a year. This figure will cover tuition + pump money back in the system to grow it as tuition rises.

    We don't even have 6 billion. Harvard has 28 billion and doesn't even give free tuition. It's a lot harder than it looks. Besides, Duke meets 100% of demonstrated financial aid. Let the people who can pay, pay. It lets us build cool buildings like the French Center (why isn't it named the Gates center???)

  15. #15

    5% return

    You should be able to do MUCH better than a 5% annual return on endowment money. Again most institutions feel comfortable spending about 5% of the endowment a year fully expecting it will grow faster. With larger endowments non traditional investment strategies can be used and returns can be higher.

    The second point I would take issue with is why multiply $40,000 by 6,000?Who says it takes 40,000 a year to provide quality undergraduate education? I certainly do not agree with this premise and feel the figure is much lower closer to $20,000 plus room and board.

    What makes a great university the best minds or the best buildings?

  16. #16

    Please help me understand

    Many colleges do an excellent job of educating students with limited resources especially endowments. http://www.teaglefoundation.org/liblog/entry.aspx?id=69
    Most universities feel comfortable spending 5% of the endowment per year. At a school like Duke 5% of the endowment comes to $220,000,000 which even if we are counting graduate students comes out to about $22,000 a year of additional income. Yet Duke somehow charges more in tution often times significantly more, than many of these "poor" schools, limited resources schools that have no almost no endowments.!!!!!! This same could apply to Yale, Swarthmore, Grinell College, Stanford etc.

    People hate change if Duke was committed, truly committed they could charge no tuition and IMHO still be on solid financial footing.

  17. #17
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    Quote Originally Posted by tecumseh View Post
    You should be able to do MUCH better than a 5% annual return on endowment money. Again most institutions feel comfortable spending about 5% of the endowment a year fully expecting it will grow faster. With larger endowments non traditional investment strategies can be used and returns can be higher.

    The second point I would take issue with is why multiply $40,000 by 6,000?Who says it takes 40,000 a year to provide quality undergraduate education? I certainly do not agree with this premise and feel the figure is much lower closer to $20,000 plus room and board.

    What makes a great university the best minds or the best buildings?
    That's easy. The best minds go to the university with the best facilities and environment for the study of their disciplines.

    A question -- where did you get the idea that "most institutions feel comfortable spending about 5% of the endowment a year fully expecting it will grow faster." You are missing the concepts of the accounting rules that apply here. Only the earnings of endowments are spendable.

    Is there any institution with the stature of Duke University that costs less than $40,000 for tuition and fees? I believe that room and board are included. Some state operated schools may be lower, but they do get substantial tax money. The Duke tuition rate is pretty much in line with other quality institutions. Also, Duke has a very good record on financial aid which I think trumps your idea.

    Let me tell you about my barber and his son. He's a barber ($13 for a haircut) with a small three chair barbershop on State Route 5 in Moore County, NC. About 8 years ago, his son enrolled at Duke University. He told me about the tuition invoice he got. It was for about $34,000, but it showed an adjustment bringing it down to around $3,400. Financial aid is what it was. He was worried that his son would have to work very hard, and his son did. Got his degree, early, and from his earnings while doing it, and other help, he was able to go to a state supported law school. Passed the bar in Mississippi, and is now practicing law in Mississippi. Financial aid is significant at Duke. One might refer to the $40,000 as the rack rate.

  18. #18

    A few comments

    1) Financial Aid is a benefit at Duke, but it would be nice if loans were kept to reasonable amounts so students would not leave overly indebted...not sure the average at duke

    2) At least at michigan the state kicked in less than 10% of the budget...I add this since I was shocked it was so low. It would be different at other state schools, but it was not as significant as I would have thought. At some point they should just drop the state

    3) I think our endowment is lower than our perceived stature...
    wiki has our endowment #16

    1) harvard 28.9 billion
    2) yale 18
    3) stanford 14
    4) Uof Texas 13.2
    5)princeton 13
    6) MIT 8.3
    7)columbia 5.9
    8)Uof Cal 5.7
    9) U of M 5.6
    10) Texas A and M 5.6
    11) Penn 5.3
    12) Northwestern 5.1
    13) emory 4.8
    14) U of chicago 4.867
    15 Wash U 4.68
    16 Duke 4.49 billion


    I think we have some work to do to catch up with the big boys!!!

  19. #19
    [QUOTE=Jarhead;21949]That's easy. The best minds go to the university with the best facilities and environment for the study of their disciplines.

    A question -- where did you get the idea that "most institutions feel comfortable spending about 5% of the endowment a year fully expecting it will grow faster." You are missing the concepts of the accounting rules that apply here. Only the earnings of endowments are spendable.

    This is just semantics here almost all endowments have been earning well over 5% nevertheless they do not like to spend over 4.5% or 5% or some similar figure. Most use a 12 quarter rolling average but even during periods of spectacular returns do not exceed 5%.

    Work to "catch up". This misses the point, the point of the endowment is not to have the largest one. The endowment serves to promote the mission of the school. Duke will never "catch up" to HYP in academic reputation or the students it attracts without doing something dramatic...no tuition is dramatic.

    "The best students" don't flatter yourself. A lot of the "best students" these days get great merit scholarships and go to small schools and state schools.

    I see that no one addressed on why some schools with no endowments do a great job educating students and charge lower tuition?

  20. #20

    Not alone

    Yale law professor Henry Hansmann, an expert on the law and economics of nonprofit institutions, was recently quotd deriding the argument that universities need to maintain their endowments against hard times rather than fritter it away on educating students now. His pointed comment: A stranger from Mars who looks at private universities would probably say they are institutions whose business is to manage large pools of investment assets and that they run educational institutions on the side . . . to act as buffers for the investment pools.

    Helpfully, [former Columbia University trustee Edward N.] Costikyan has a suggestion for university administrators looking for ways to spend the money: Reduce tuition. He cites estimates that colleges like Harvard could conceivably abolish tuition altogether.

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