The financial security of a strong university endowment would seem to matter most when hard times come along—when revenues slow and core functions are in danger of being compromised. At such times, an endowment can help guard against shortsighted cost cutting that harms both near-term quality and long-run vitality. But it turns out that many universities do nothing of the sort.
During the recent recession, most endowments took a beating, with the average endowment losing a quarter of its value. That decline followed years of heady growth that led endowments to grow at a far faster clip than university spending did. As a result, the losses suffered in the market meltdown represented a much larger loss relative to universities’ annual operating budgets than did any previous market correction.