The Triumph of the Money Managers

Here is one fact: University endowments look set to have their best year since 1986, with a median 27-percent return across all endowments. Some of the wealthiest schools are announcing eye-popping yields. Brown University’s endowment generated a 52-percent return, while the University of Pennsylvania saw a 41-percent return. Washington University in St. Louis stands out even among this select group, reporting an astonishing 65-percent return. The record-breaking gains have not been limited to private institutions, either. The University of Virginia’s endowment investments grew by nearly 50 percent; the University of North Carolina system’s by 42 percent. Even public institutions not typically considered financial powerhouses are posting impressive numbers: The University of Nebraska system saw a 32-percent return this year.

Here is a second fact: Across higher education, 650,000 jobs have disappeared since the start of the Covid-19 pandemic. While 2021 was a year of staggering endowment growth, 2020 was a year of deep and sometimes existential cuts. At university after university, administrations responded to the pandemic with fiscal discipline and layoffs. Dozens of tenured faculty members lost their jobs at the University of Akron and Indiana University of Pennsylvania; dozens more are on the chopping block at the College of Saint Rose. In some cases, university administrators axed whole programs and departments. At the University of Vermont, administrators announced plans to gut liberal-arts programs and have terminated or not renewed the contracts of longstanding instructional staff; this year, the university’s endowment grew by 30 percent. Pandemic-driven spending cuts affected those at the top of the university’s teaching and research hierarchy, but devastated those at the bottom. Most of the cuts fell on adjuncts, food-service workers, and environmental-services employees — those least able to absorb a financial setback.

As college endowments continue to balloon, administrators find themselves in the awkward position of defending budgetary discipline on the one hand while trumpeting financial success on the other. This has produced some bizarre spectacles. In October, UNC-Chapel Hill announced $5 million of library cuts — just a few weeks after heralding an endowment return of 43 percent and a total endowment of over $5 billion (yes, that’s billion with a “b”). Down the road in Durham, administrators at Duke University withheld cost-of-living salary increases, increased limits on class size, and raised tuition, citing financial pressures. Meanwhile, Duke’s endowment grew 56 percent, to $12.7 billion. Faculty and staff members have the sensation of living in two different realities at once, absorbing reductions to budget, jobs, and salaries while watching their institutions grow richer and richer.

Higher-ed workers might have an opportunity to reconcile these trends. The sector now looks poised to enter a period of recovery, thanks to the return of in-person instruction, an economy that has avoided recession, and two rounds of federal stimulus. The question is no longer how to weather a downturn, but how to invest in the long-term health of universities, the people who work in them, and the communities they serve. We can realize a more just, humane, and accessible vision of what college can be. But we have to understand the pressures and the incentives that led to such an unequal distribution of gains and losses in the first place.

This year’s endowment performances represent just another step in the ongoing financialization of higher education, a process that renders university missions subservient to the performance of their investment portfolios. As universities compete to survive in an atmosphere of shrinking federal funding and growing competition for revenues and enrollments, administrators are forced to weigh the judgments of college rankings, which take endowments into account; credit ratings, which govern the price of borrowing for capital and other projects; and a class of managers and trustees with deep ties to the financial industry. Universities are now both real-estate titans and major institutional investors.

They are also major debtors, and the amount of debt universities carry has risen along with the cost of tuition. More debt means more debt-service payments, and more exposure to interest-rate fluctuations. Administrators now make major decisions — about investments, capital plans, spending, and buildings — on the advice of financial officers and university trustees, many of whom are themselves drawn from the world of business and finance.

But what’s wrong with the university making sound financial decisions, and employing experts to do so? After all, a university without money can’t fulfill any of its other duties. There is a difference, however, between an endowment that serves the university and a university that serves its endowment. Too often now, the tail seems to wag the dog: The university’s moves are constrained by the imperative to grow the endowment. That means lowering endowment draw — the amount of money the university takes out to cover expenses each year — and reducing costs, especially labor costs. It also means centralizing decision-making by chipping away at shared governance, rendering university committees powerless rubber stamps for preordained choices, and busting new and old unions alike to crush worker power.

Meanwhile, endowment managers have chosen to chase returns in risky terrain. While some of this extraordinary endowment growth results from a strong stock market, many of the gains are concentrated in venture capital and private equity. The enthusiasm of endowment managers for such alternative investments raises serious ethical questions: Venture capital and private equity have made concentrated investments in the technology sector, driving significant disruption to traditional industries and underwriting a host of troubling labor practices. Witness the canonical cases of Uber and Lyft, which have raised billions in venture capital, devastated the taxi industry, committed vast labor abuses, sparked extensive worker protest, and together spent hundreds of millions to change California law to shield themselves from labor protections. As of 2021, Uber had still not achieved profitability.

Private equity is yet another story: At least venture capital seeks to create new and profitable industries. Private equity often acquires companies in trouble, seeks to trim costs by raising prices and lowering standards for workers and consumers, and, if all else fails, sells off the company’s assets to pay back investors. University money managers do not make these decisions directly, but their returns depend on them.

This turn toward private equity and venture funds also reproduces inequality at the institutional scale. Institutions with smaller endowments typically cannot buy into the kinds of venture and private equity funds that the wealthiest schools can, a challenge that disproportionately affects HBCUs and other minority-serving institutions. In other words, colleges and universities are experiencing the same “K-shaped recovery” as the rest of the country: The wealthiest institutions benefit while smaller and poorer schools (those who educate the majority of working-class, first-generation, and nontraditional students) struggle to survive.

Across higher education, this record year for university finances has reignited conversation about what, and whom, university endowments are really for. In response, administrators have defended their prerogative to accumulate ever more. Endowments, they explain, are neither checking accounts nor slush funds: They are meant to support universities in perpetuity, providing support for future generations of students, faculty, and staff. A recent press release from Princeton University makes exactly this case, arguing that the endowment must be managed with an eye to “intergenerational equity.”

University administrators at the wealthiest schools hope to distract from the plain truth, that university administrators use the endowment and the constant imperative to reduce spending, reinvest profits, and deliver ever-more-impressive returns as a screen against any check on their managerial powers. Certainly, the mission of growing endowments above all else has been good for endowments themselves and for the people who manage them: Endowment managers are often the best-paid employees on university payrolls, and Harvard alone paid its endowment management team over $30 million in 2019. But can the rest of us employed in higher education say we have really benefited? Growing endowments do not result in lower tuition. They do not improve working conditions for people employed at universities. They do not drive university investment in local communities. That’s why articles like Princeton’s exist in the first place: They need to explain why the university, despite controlling billions in ready capital, can’t answer demands — on the parts of students, faculty, staff, or the community — for accountable use of their wealth, let alone for any meaningful redistribution.

Rather than revert to pre-pandemic practices or spending levels, many administrators would prefer to drive universities toward a new normal of leaner faculties, more remote instruction, reduced academic resources, and more investments in novel and often unproven ideas. In a recent interview in University Business, Michael Huseby, the CEO of Barnes and Noble Education, argues that the university should function “like a mini corporation,” investing more in career preparedness, ed-tech, and “on-demand learning” that supersedes the time- and place-bound nature of traditional university degrees. A recent opinion essay published in Inside Higher Education takes a similar line, predicting five trends to which higher-education institutions must adapt or die. These trends include an expansion of digital and online learning, an increase in consumer power relative to institutional power, and another nod to on-demand education. It is certainly the case that major changes are coming to higher education — though whether they are inevitable, or merely being prophylactically predicted by the same corporate-administrative class now working to enact them, is an open question.

The trends that look poised to overtake higher education — from reduced library resources to “flexible” (read: insecure) instructor contracts to on-demand degrees to the financialization of, well, everything — should look familiar. They are the same trends already transforming industries, like technology and health care, that private equity and venture capital have made moves to capture over the last decade and a half. Money managers may argue that growing endowments protect and further the university’s ability to carry out its mission, but it’s worth asking whether universities themselves are merely providing cover for private equity and venture capital’s profit-generating machine.

The greatest barrier to implementing this flexible, disruption-driven education model is the residual power of tenured faculty. But the protections of tenure depend to a large extent on the willingness of administrators and boards to respect the old rules. Those rules can be easily cast aside, however, as the recent vote of the Board of Regents of the University System of Georgia to effectively abolish tenure systemwide shows. Even at an institution like the University of California, where the faculty senate retains substantial power, it has been largely excluded from any budgetary authority. Faculty members establish criteria for admission and degree conferral, set academic standards, and make recommendations for tenure and promotion of faculty members — but the senate is limited to an advisory role on matters pertaining to the budget. And that’s the best-case scenario. A strong faculty senate is hardly the rule.

Over the short term, some of the universities that performed particularly well this year will make new strategic investments in facilities, faculties, or reputation-building programs. Some of these changes, like Washington University in St. Louis’s move to need-blind admissions, will help make institutions more equitable and accessible. Still, without major restructuring, well-resourced private universities will remain bastions of privilege, no matter what their leaders may say about access, fairness, and inclusivity. But that doesn’t mean that we can’t begin to make substantive changes now. Indeed, doing so before the next crisis is imperative to the long-term health of higher education as a whole.

Ending the university’s indisputable role as a driver of inequality will mean challenging the power that boards, upper-level administration, and money managers have so methodically accumulated over years of financialization. Administrators now routinely set budgets, make spending plans, demand reductions in staff or resources, take on debt, raise tuition, and even make academic decisions about establishing or closing programs, shrinking or consolidating departments, adding or eliminating courses of study, and granting or denying tenure with little or no faculty consultation. For a generation of students and professors who have only ever known the university in its neoliberal era, this wide administrative remit seems normal, even natural. But in an era of compounding health, labor, climate, and affordability crises touching every aspect of higher education, it is inexcusable. No administrator should be able to impose austerity one day while reporting enormous windfalls the next.

The fight to break the power of trustees, upper-level administrators, and the endowment must take place at both the local and the national levels. At public institutions, it will mean building coalitions like Higher Education Labor United to fight for taxes on the wealthy and increased state and federal funding for annual budgets, reducing the tyranny of the endowment. At private institutions, it will mean resisting new budget cuts and demanding the restoration of pre-Covid-era spending on teaching, staffing, and academic resources.

Everywhere, it will mean insisting on real transparency around endowments — not just selective reporting that does more to obscure than to clarify a school’s financial positions and material interests. It could mean pushing for a meaningful endowment tax — rather than the Trump-era political penalties — that incentivizes universities to move toward greater affordability and inclusivity rather than simply hoarding their wealth. And it must mean ending strategies of real-estate speculation, tax dodging, forced gentrification, and aggressive policing that institutions of higher education have used to plunder the cities and towns where they are located. It will mean making the people who live in these places real partners in shaping the university’s future.

This can’t be accomplished overnight, and it won’t happen without everyone from staff to faculty to administrators playing a role. But we have already seen a vision of the alternative future, of obscene profits for the few and precarity for the many. We owe it to ourselves and to each other to demand better.