Frequently Asked Questions
What is an endowment?
How do endowments work?
Like most colleges and universities, Carnegie Mellon’s endowment funds are managed to provide a permanent source of income to support the institution’s mission. Managed as a set of pooled assets, the endowment funds are comprised of many individual funds that are invested in a purposeful and disciplined manner. A certain percentage of the endowment funds is spent each year, subject to the following key goals:
- Honoring the donors’ intended purposes for their gifts
- Supporting the current operations of the institution
- Protecting the endowment value against the long-term, eroding effects of inflation.
A common misconception is that an endowment is simply a large pot of money that a college or university can spend indiscriminately, however and whenever it chooses. In fact, an endowment is created through private gifts intended for the long-term support of non-profit institutions, which gifts are often restricted in very specific ways.
How much is typically spent from an endowment each year?
While endowment values generally rise and fall with market conditions, most institutions adopt and adhere to spending policies that enable them to generate a steady support for annual operations. This financial stability is crucial to institutions, whose mission-critical activities are chiefly long-term and not easily started and stopped (e.g., the funding of faculty positions or ongoing maintenance and renovation of campus facilities).
Over the last decade, the annual spending rates of college and university endowments have averaged between 4.5% and 5.1%. Today, three-quarters of colleges and university apply a spending rate of about 5% to a moving average of the endowment value, which allows for a smoothing of the annual support from the endowment and protects its long-term value. Carnegie Mellon’s spending policy, for instance, is to spend five percent of a rolling, thirty-six month average of the endowment’s market value.
Carnegie Mellon’s Endowment
Why is Carnegie Mellon’s endowment important?
For Carnegie Mellon, its endowment is essential for providing students with world-class programs and educational opportunities beyond those that could be funded by tuition alone. Fortunately, Carnegie Mellon is extremely efficient with its financial resources; ensuring funds are dedicated to important educational purposes. Because of its exceptional efficiency and emphasis on world-class quality, Carnegie Mellon is able to compete with larger, richer institutions for the best students and faculty.
How much of the endowment goes to support students and their educational experience?
How does our endowment compare to other educational institutions?
How much of Carnegie Mellon’s endowment covers annual operations?
Compared to other universities, Carnegie Mellon’s annual spending from its endowment provides far fewer dollars to support our annual operating costs. While some peer institutions can support 20 to 30 percent of their annual operations from their yearly endowment distribution, Carnegie Mellon is only able to fund about 5.3% of its annual operations from its endowment.
How does Carnegie Mellon decide what to spend out of the endowment each year?
1. supporting the current needs of the Carnegie Mellon’s students, faculty and programs
2. according to the principle of “intergenerational equity,” ensuring that future students, faculty and programs will benefit from similar levels of endowment support.
Carnegie Mellon’s current policy for annual spending from the endowment is to spend 5% of a rolling 36-month average of the endowment market value.
Why can’t Carnegie Mellon spend more out of the endowment each year?
Carnegie Mellon takes very seriously its legal and moral responsibility to honor our donors’ wishes to ensure that endowment funds are at least as strong 10, 20 and 50 years from now as they are today – so they can continue to serve the future needs of students and society, just as they do now.
How are the endowment funds accounted for?
How are the assets actually managed?
How are Endowment Distributions Made?
Distributions from the endowment are paid to the campus on a quarterly basis.
The following schedule outlines when the distributions are made:
1Q FY distribution to be made in July, based on March shares
2Q FY distribution to be made in Oct., based on June shares
3Q FY distribution to be made in Jan., based on Sept. shares
4Q FY distribution to be made in April, based on Dec shares