The Ivy League consists of eight schools that are widely regarded as being some of the finest in the United States. Where the SEC is synonymous with football and the PAC-12 is known for the stereotypical "Left Coast" lifestyle, the Ivies are known for both their rigorous athletics and inflated self-esteem.
Some of the reputation is bluster, but when it comes to their endowments, the Ivies are everything they're cracked up to be. Five of the top 10 largest university endowments in the U.S. belong to Ivy League schools — Harvard topping the list at $32 billion, Yale in second at $19 billion, and Princeton third, with a fund of $17.5 billion as of October 2011.
Larry Swedroe, director of research for Buckingham Asset Management and author of Investment Mistakes Even Smart Investors Make, joined Breakout to walk us through the endowment investment process.
Why do schools have endowments?
Generally consisting of money from donations, endowments are typically put to work funding construction, scholarships, and other operational needs not fully covered by school tuition.
Money sitting idle or parked in Treasuries earning next to nothing does no one any good. The greater the return, the larger the endowment, and the bigger the buffer between the schools and poverty. Essentially, schools have endowments for the same reason people have savings.
What strategies do they use?
Schools with larger endowments have more than they need for annual operations. That excess gives them an investing time frame of as as long as the school may exist. (Harvard was founded in 1636 and has no plans to close up shop.) "Eternity" is longer than even the staunchest buy-and-hold investor, but that doesn't mean there aren't lessons to be learned.Read More »from What Harvard Can Teach You About Investing