Most colleges and universities of all sizes have an endowment, a fund that provides a stream of income and maintains the corpus of the fund in perpetuity. Organizations with large endowments, such as colleges, universities, and private foundations, all finance a significant part of their operations through the return received from the investment of this capital. This article examines the legal framework for endowment investing, endowment investing policies, their evolution to more sophisticated and riskier strategies, and the consequences evinced during the financial crisis of 2008 and beyond. It traces the approaches to endowment investing and chronicles the rise and, if not the fall, the challenges to modern portfolio management. It examines the impact of endowment losses on colleges and universities and their constituencies, as well as the problem of trustee deference to boards' investment committees. This article concludes that universities have learned little from the financial crisis and are more invested in illiquid, nontransparent assets than before the financial crisis. Finally, this article recommends the establishment of board level risk management committees to evaluate endowment investing policies.
James J. Fishman, What Went Wrong: Prudent Management of Endowment Funds and Imprudent Endowment Investing Policies, 40 J.C. & U.L. 199 (2014), available at http://digitalcommons.pace.edu/lawfaculty/958/.