Endowment
Columbia's endowment is an approximately $6 billion portfolio of equities, commodities, fixed-income instruments, and cash equivalents. It is not a "slush fund" for spending, as it is mean primarily to serve as a long-term investment vehicle. On the other hand, it's not just a pile of money that serves no purpose but to grow each year either.
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Structure
As of 2004, Columbia's endowment was diversified among approximately 4,000 equity and commodity securities, and unknown fixed-income positions.
Spending rule
With various conditions, the Trustees aim to spend approximately 5% of the endowment per year to fund the university budget. Indeed, approximately $200-$300 million of the university's $2 billion budget comes from endowment spending. This is not just a round number, but actually a legal requirement for a non-profit which maintains significant investments to keep its non-profit status.
Size
At $6 billion in fiscal 2006, Columbia's endowment lags significantly behind its Ivy League peers. Harvard's is the largest at $30 billion. Princeton's is the largest on per-student terms.
Performance
Columbia's endowment has performed well for its approximately 20 years of existence (prior to the sale of Rockefeller Center in 1985, Columbia's endowment in securites and investments was insignificant). It has averaged an approximately 16.5% compound annual growth rate (CAGR), which outpaces the S&P 500 index by a respectable margin, and is on par with other alternative investment concerns. It should be noted, however, that Columbia's endowment is exempt from both corporate and capital gains taxes, and does not face unpredictable principal volatility, as the the 5% spending rule is more or less fixed.
Socially Responsible Investing
Columbia's investments are subject to review by the Advisory Committee on Socially Responsible Investing (ACSRI), which does what its name implies. ACSRI, composed of students, faculty, and administrators, makes only recommendations; the Trustees make the final decision in all cases.
ACSRI did not yet exist when Columbia made its most famous divestment, from apartheid South Africa in the 1980s, after an extended political battle and the occupation of Hamilton Hall by pro-divestment students. ACSRI recommended divestment from Sudan in 2005, and this was carried through by the Trustees.
Presently, the Columbia Coalition Against the War (CCAW) is spearheading an effort to have Columbia divest from companies that presently materially support or benefit from the war in Iraq. CCAW is targeting three companies in which Columbia is presently invested to the tune of around $1.5 million each: Raytheon, General Dynamics, and Lockheed Martin. CCAW's 12-page formal proposal notes:
Divestment by Columbia alone would not be sufficient to change corporate behavior, but it would be an immensely powerful symbolic act and, if imitated, might help provide a significant financial incentive for change. Moreover, Columbia has an ethical obligation to avoid complicity in the ongoing brutality associated with the occupation in Iraq.
Two members of CCAW wrote an op-ed for the Spectator entitled "Columbia Has a Responsibility to Divest".
Such divestment will most likely not have any financial effect, and is meant largely as a symbolic gesture.
Hedge fund?
It is debatable on whether Columbia's endowment is actually a hedge fund in disguise (as Harvard's clearly is). However, it is known that they employ the services of a prime broker.
The majority of Columbia's endowment is invested in (admitted, external) hedge funds. Less than $1 billion is invested in publicly traded stocks picked directly by Columbia's office of finance.
This is hardly an ideal arrangement because hedge funds and other alternative investments usually charge a "2-and-20" expense ratio. That is, 20% of any gains in a given year, and 2% of principal, regardless of whether the fund makes a gain or books a loss. Therefore, by investing predominantly in hedge funds instead of formulating its own investment strategies, Columbia's endowment is surrendering a significant percentage of potential gains each year in management fees.
Nor is Columbia's endowment size inappropriate for a hedge fund. Most hedge funds are run under the $10 billion mark. Nor can Columbia plausibly claim that it does not have a sizable pool of financially savvy associates to draw from. A possible explanation as to why Columbia chose not to create its own hedge fund strategy and instead surrender at least 2% of principal and 20% of gains each year is because of a desire to avoid the backlash that endowment manager Jack Meyer at Harvard created when it was revealed that Harvard paid him $35 million one year. Such a salary, while high, is hardly exorbitant by hedge fund standards, which is probably why Meyer left shortly thereafter to start his own hedge fund (where he gets paid in excess of $100 million per year). The fact that the Harvard endowment's compound annual growth rate outpaced Columbia by at least 2-3% per year was apparently not considered.
