Can that money be used for anything?
In: 1
Sometimes endowments are earmarked, but if not, then yes they can use the money for anything.
It depends on how the endowment is structured but *generally* university endowments are set up so that the principle of the investment cannot be touched, and the university only spends the interest income from the investment.
So, a $1,000,000 endowment might throw off $50,000 a year from an investment that generates 5% of interest every year. That money comes year after year, and that’s why universities love endowments.
Endowments are sometimes dedicated to a specific purpose – the money might be earmarked for a specific department or a specific faculty position.
An endowment is money that is nvested but not directly used.
It is then the returns from those investments that an organization will use. This could be a simple as buying a bunch of government bonds (which pay interest) to more complex and potentially risky investments.
That said actually dipping into that money directly and reducing the size of the endowment is often a very bad sign. Since most organizations with an endowment are supposed to exist for as long as possible.
So to answer your question “can that money be used for anything”
Yes, it’s used to make more money.
It means that the university basically has an investment account with $5 billion in assets. These are typically funded with gifts to the university, perhaps royalties from patents earned by university research output, etc. and then invested by a team of portfolio managers to grow the fund.
Some portions may be earmarked for specific uses, ie. Mr. Smith gives $5m to fund the Smith Professorship in History, so that $5m pays for that professor’s salary and benefits. Or perhaps gift money is earmarked toward a new music venue, or scholarships for students of certain criteria, etc. Or it may just be general funds for whatever the university sees fit.
Typically, most of the endowment’s principal is kept in tact, generating interest and dividends to fund programs on an ongoing basis. So that $5m professorship endowment uses the $200k in interest and dividends generated annually to pay for the professor’s salary and benefits.
Latest Answers