<p>I disagree less with Cue7 than the comparative tones of our posts indicate.</p>
<p>Nevertheless, I would point out that Chicago has had excellent investment performance with its endowment: 6.6% in FY 2013, averaging 10%/year over the previous decade (which of course included three absolutely horrendous years), doubling even after contributing substantially to the University’s operating budget. Meanwhile, in FY 2013, on average outstanding debt of about $3.6 billion, the University incurred interest expense of either $100 million or $28 million (depending on whether you offset interest expense by interest derivative gains), for an effective interest rate of 2.8%-0.8%. That’s a pretty nice spread, especially if your base is measured in billions. I am sure that a good deal of the increased debt was effectively incurred to carry investments rather than liquidate them to meet capital needs, and so far that has been a good decision.</p>
<p>Really, what else would you expect the University of Chicago to do but to follow the market’s signals, and the market has been saying “Borrow, borrow, borrow!” As long as they don’t have to keep borrowing after they have trashed their credit rating, and they can raise enough to de-leverage from contributions and/or selling investments, things will be fine.</p>