(01-29-2015 02:52 PM)TodgeRodge Wrote:  

(01-29-2015 01:05 PM)banker Wrote:  So basically Rice could triple each school's endowment and still be 4 times bigger than the second largest.

I've never really looked into how endowments are handled. I understand all the restricted/unrestricted stuff, but not the reasoning behind the accumulation of wealth by universities to a level beyond what they would ever conceivably need. Not saying Rice is necessarily there, but I find it hard to believe a school like Harvard actually ever needs to raise another dollar for anything.

endowments generally pay out between 4.5% and 5% of a rolling 3 to 5 year average of the total endowment

so for round numbers Rice with 5.5 billion would each year spend somewhere around $275 million or a little less (Rice is very financially conservative so they spend under 5% of their endowment last I read somewhere close to 4.5%)

undergrad tuition and fees for Rice were $39,880.00

Rice has 3,888 undergrads

so if you did the math $39,880 * 3,888 = $155,053,440

Rice has 2,610 grad students

Graduate tuition is from $28,000 to $32,000 or so with many students getting that reduced to 10% or less for teaching or a research stipend

so 2,610 * $29,000 = $75.690,000

so total graduate and undergrad tuition if every student paid full price would be $230,743,440

but again not close to every undergrad or grad student pays full tuition

in fiscal year 2014 Rice had a total budget of $ 594,915,000

$266,497,000 for instruction and research
$102,569,000 in sponsored research (money others paid Rice to conduct research in grants or donations or contracts)
$29,947,000 to run the Library
$18,900,000 in scholarships and fellowships
$59,048,000 Auxiliary (athletics ect)
$63,525,000 student services
$29,730,000 administration
$24,699,000 institutional development

so the vast majority of money was spend on instruction and research that was not sponsored (pretty much all Rice students undergrad and grad participate in research)

so Tuition alone even with everyone paying a full ride would not cover half of the cost of running the university and that is where endowments come in

many would say "well spend SOME of the endowment", but you can't do that and here is why

you are going to be hard pressed to earn a consistent return on investment in any decent long term investment over 10%

you have to have room for "inflation" because if your endowment does not grow with inflation then the $275,000,000 you earn today in a $5.5 million dollar endowment will not have near the same buying power in 20 years from now when $275,000,000 is not buying the same goods and services and your endowment has not grown to keep up with inflation

so you spend a portion of your annual returns (4.5% to 5%) and you leave the rest in the endowment (3% to 5%) to keep up with inflation and for those times when the stock market and other investments go negative

here is an example of that

http://www.nacubo.org/documents/research...tValue.pdf

in the NACUBO 2009 survey (of 2008 values)

Harvard was $36,556,284,000

Rice was $4,610,164,000

in 2010 (2009 values)

http://www.nacubo.org/Documents/research...Values.pdf

Harvard was $25,662,055,000

Rice was $3,612,884,000

So Harvard had lost nearly 11 BILLION and Rice 1 Billion in a single year

that equates to a reduction in investment return of $495,000,000 on just the endowment dollars LOST for Harvard not to mention the actual 11 billion lost and that is about a $45 million loss of investment return for Rice not to mention the $1 billion lost

which is why you spend a rolling average of several years

so for Rice with a $595 million per year budget that loss of $45 million in annual returns is 7% to 8% of their budget that vanished

so if you have been planning LONG TERM you reduce your spending 3% to 4% and you dip into the total endowment dollars and you wait until you start earning 7% to 10% per year again and you build your endowment back up along with a gradual increase in spending based on the rolling average of annual total endowment


the inability to understand this basic investing is why a massive % of pro athletes end up broke and not only broke, but in debt

they simply cannot put any money away for the future and they cannot deal with the basics of what long term investing and investment returns are or how to budget for that

they get a $25 million dollar contract.....10% to an agent so now $22.5

40% in taxes (state and federal income) so now you have $13,500,000 to put in the bank (and that is if you get it all in one chunk)

if you spend 5% of that per year you can spend $675,000 per year or $56,250 per month

so if you are a "pro" and manage to get $13,500,000 in the bank you can spend $675,000 per year and keep up that type of lifestyle for the very long term including inflation

BUT of course even that is not true.....because if you have $13,500,000 in the bank when you retire and every year that is paying out 10% in SOUND investments (not your idiot friends car wash or wings store or "grills" store ect)

well that is an investment return of $1,350,000.....and you pay 33% to "the man" (in a state with no income taxes) and closer to 40% in one with state income taxes

so that leaves you $810,000 and you need to have some of that invested to keep up with inflation

so if you keep back 3% of your total investment money for inflation and to keep up with years when stocks decline

3% of $13,500,000 = $405,000

so you have $1,350,000 return on your investments if you are getting a VERY HIGH 10% annual return.......you pay 40% of that in income taxes or $540,000......you keep back 3% of your total invested assets for inflation and bad stock market years......$405,000 for a total of $945,000 out of $1,350,000 which leaves you $405,000 per year to live on (make it rain and sheet)

or $33,750 per month

but if you are stupid you spent $5,000,000 of that $13,500,000 on a crib and you put 300 plasma screen TVs in it and tiger skin on the ceilings and zebra skin on the walls

you spend another $1,000,000 on cars and put a bunch of ugly paint on them and crappy rims and tires

3 fun babies and all of them came when you were making the most money per year

hose for mom

$2,000,000 on your friends stupid restaurant ideas, cRap albums, and making it rain in Vegas and talking to Johnny F on the money fone

and now you are down to $5,000,000 in the bank, your wing store has failed, your child support is MASSIVE, the annual taxes, maintenance and upkeep and utilities on your crib and moms crib are killing you

the cost of maintaining your cars is killing you and if you do not have "the book" signed for your lambo and furrurriie they decline in value dramatically when you sell them used

your investments suck because your uncle in law is your investment adviser and you end up selling your tricked out crib for 65% of what you paid for it because no one wants leopard skin carpets with kool burns in them and a boob shaped pool and a tiger cage in the yard and it needs maintenance and real estate is down in your area

and suddenly you have about $2,000,000 in the bank......your career ends, your child support eats up 100% of what your $2,000,000 in the bank pays out and leaves nothing for you.....you are a known knucklehead and no company wants you as a spokesperson and you have no skillz for the real world and you go broke and you are probably in debt after lawyers to settle all your stupidity......but you were worth $13,500,000 two years ago

but you could not manage to make it work on $33,750 per month because that is what you spend on santana champs and shawn john and korvisaaye at the strip club each week much less at Applebees every night of the month

every $5,000,000 house and every $500,000 car and every $50,000,000 million building at a university is an EXPENSE.....ADDED TO YOUR CURRENT EXPENSES

and when you are not even getting a return on your investment to cover your yearly expenses you are in trouble as soon as your career ends or as soon as your car wash, wing store and cRap album and recording studio and record label fail much les sif stocks and real estate decline

This is the greatest ramble, hypothetical - not based in fact - post I have ever seen.

Unfortunateley, you lost me at hello. And then I fell asleep trying to read the rest.