<p>While the endowment is often seen as one big pot of $$$$$ it actually is hundreds of smaller pots. Some are below their allowed level and can’t spend any money.</p>
<p>[Endowments</a> Trapped by Losses at NYU Expose Dated Laws (Update1) - Bloomberg.com](<a href=“Bloomberg Politics - Bloomberg”>Bloomberg Politics - Bloomberg)</p>
<p>^ Thanks for this interesting and timely post, barrons. Something people don’t think about much: it’s not just the total size of the endowment (or the magnitude of recent losses), but what kinds of legal and contractual limits are placed on endowment spending that determines how much and for what purpose a college or university can actually spend, and how badly it’s hurt by the downturn. Some schools have a relatively large fraction of their endowments in unrestricted funds. But often a large fraction—most or nearly all, at some institutions— is divided into hundreds of small special-purpose pots, usually for things like endowed scholarships and endowed faculty chairs. It’s often easier to raise money for that kind of restricted special-purpose spending, especially since the donor is typically rewarded by having the scholarship or chair named after him (or the person he’s seeking to honor). John Doe may not care to part with $1 million to be swallowed up into a $10 billion endowment where it will represent a trifling 0.01% of the whole. But if the $1 million will support a few students as John Doe Scholars or a top faculty member as the John Doe Chair, that’s another matter entirely. But those sorts of restrictions really tie the school’s hands, limiting its ability to move money around to address changing needs, especially when compounded by antiquated laws prohibiting any spending at all from “underwater” funds, effectively blocking the use of those funds even for their intended purpose when the markets are down.</p>