Tuesday, November 18, 2014





            In the hopes of picking up another $100,000,000 per year, the UC Regents are meeting this week to discuss UC President Janet Napolitano’s recommendation that tuition be increased by 5% a year over the next five years. 

Jerry Brown is not happy.  He thought he cut a deal in which the State would increase funding 4% to 5% over the next five years in exchange for UC freezing tuition.

Taxpayers can’t be happy.

What the Regents don’t want us to focus on is that there might never have been a need to increase tuition three fold since 2002.   Had they simply taken a page out Yale Endowment guru, David Swensen’s book, UC might not have had to raise tuition at all. 

Since 1985, Swensen has grown Yale’s endowment from just over $1 billion to $22.3 billion. Over the last two decades, he’s generated returns of 13.7% per year. UC’s endowment has grown 7.3% over the past decade.  When Swensen started managing Yale’s endowment, it only supported 10% of the school’s annual budget. Today it covers over 30%.

More than half of the UC endowment – a total of $11.2 billion as of June – is supervised by the regents.  Investment officers on individual campii manage the rest.

When taken together, that means every one percentage point increase in returns translates to $112,000,000 per year to UC—more than the $100,000,000 Ms. Napolitano expects to pick up with the new tuition increases.

According to an article from the Center for Investigative Reporting and published in the Chronicle last February 14th, “From 2004 through 2013 fiscal years, the investment payout for the UC endowment ranked last (7.3%) among the 10 U.S. universities with the largest endowment funds.”  Had UC matched the top ranked schools, “it would have earned an additional $5.4 billion over the decade,” they reported.

“Yale and Columbia earned the highest returns at 11%.  Public Universities like Michigan and Texas averaged 10%,” while cross-town rival Stanford came in at 9.9%. 

Despite the fact that the endowment returned a commendable 18.7% this past year (vs. Yale’s 20.2%), had the previous 9 years been managed effectively, cutbacks by the State would have been mitigated significantly and tuition increases held at bay.

If one Googles universities with over $5,000,000 in corpus, UC comes in 17th out of 18 in returns over the past decade.  

Five of these 18 Universities are public (UC, Virginia, Michigan, Texas, Washington) and UC comes in dead last among the five.

How can we taxpayers allow the trustees of the “Greatest University in the World” to perform so shabbily?

UC Chief Financial Officer Peter Taylor told CIR, “Would I have liked to have earned 10 percent a year? Absolutely. Sure,” he said. “But how risky should a public university be?”

Well University of Michigan (as close to a “peer” as one can find) grew it’s endowment from $3.5 billion in 2000 to $7.9 billion in 2007, after a modest $1.9 billion increase over the previous ten years.  It’s now #8.  How?  They hired Eric Lundberg who turned things around using his version of the Swensen model.

I guess Regents can’t be sued for conservatively investing money (that’s code for protecting one’s backside).  But this failure to maximize our own endowment, and then asking families to make up the difference, is as close to criminal as it gets.

Rather than rail at the legislature for cutbacks; rather than recruit out of State students (who pay more) to the detriment of in-state taxpayers; and rather than raise tuition, why not just place a phone call to David Swensen or Erik Lundgren--offer to pay adult compensation (market rate)--and see who they would recommend that follows their formula?

Or pay them whatever they want to take the endowment and see what happens?

Endowments generally pay out 5% or so each year. By running a professional operation (as opposed to a “backside protecting one”), we could easily cover the projected tuition increases, and still have money left over to build the endowment--all without raising tuition.

We can agree that Regents have a fiduciary responsibility to the taxpayers to invest funds prudently.  

But are we talking prudence or malfeasance? However you view it, isn’t it time to fix it?

The Regents left $5.4 billion on the table these past 10 years.

 The Citizens of California deserve better.   

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