Financial endowment A financial endowment is a transfer of money and / or property donated to an institution . The total value of an institution ' s investments is often referred to as the institution ' s endowment and is typically organized as a public charity , private foundation , or trust . Among the institutions that commonly manage an endowment are academic institutions ( e . g . , college s , universities , private school s ) , cultural institutions ( e . g . , museums , libraries , theaters , hospitals ) , and religious establishments . An endowment may come with stipulations regarding its usage . In some circumstances an endowment may be required to be spent in a certain way or alternatively invest ed , with the principal to remain intact in perpetuity or for a defined time period . This allows for the donation to have an impact over a longer period of time than if it were spent all at once . College and university endowments . Academic institutions , such as colleges and universities , will frequently control an endowment fund that finances a portion of the operating or capital requirements of the institution . In addition to a general endowment fund , each university may also control a number of restricted endowments that are intended to fund specific areas within the institution . The most common examples are endowed professorships ( also known as named chairs ) , and endowed scholarship s or fellowships . In the United States , the endowment is often integral to the financial health of educational institutions . Alumni or friends of institution sometimes contribute capital to the endowment . The endowment funding culture is strong in the United States and Canada but less pronounced overseas , with the exceptions of Cambridge and Oxford universities . Endowment funds have also been created to support secondary and elementary school districts in several states in the United States . Restricted endowments . Endowment revenue can be restricted by donors in numerous ways . Professorships and endowed scholarship / fellowships are the most common restriction on large donations to an endowment . The restricted / unrestricted distinction focuses on the use of the funds ; see quasi - endowment below for a distinction about whether principal can be spent . Endowed professorships . An endowed professor ship ( or endowed chair ) is a position permanently paid for with the revenue from an endowment fund specifically set up for that purpose . Typically , the position is designated to be in a certain department . The donor is allowed to name the position , which typically takes a " First - name Last - name Professor of Department - name " format . Endowed professorships aid the university by providing a faculty member who does not have to be paid entirely out of the operating budget , allowing the university to either reduce its student - to - faculty ratio , a statistic used for college rankings and other institutional evaluations , and / or direct money that would otherwise have been spent on salaries toward other university needs . In addition , holding such a professorship is considered to be an honor in the academic world , and the university can use them to reward its best faculty or to recruit top professors from other institutions . History . The earliest " endowed chairs " were those established by the Roman emperor and Stoic philosopher Marcus Aurelius in Athens in AD 176 . Aurelius created one endowed chair for each of the major schools of philosophy : Platonism , Aristotelianism , Stoicism , and Epicureanism . Later , similar endowments were set up in some other major cities of the Empire . The practice was adapted to the modern university system beginning in England in 1502 , when Lady Margaret Beaufort , Countess of Richmond and grandmother to the future king Henry VIII , created the first endowed chairs in divinity at the universities of Oxford ( Lady Margaret Professor of Divinity ) and Cambridge ( Lady Margaret ' s Professor of Divinity ) . Nearly 50 years later , Henry VIII established the Regius Professorships at both universities , this time in five subjects : divinity , civil law , Hebrew , Greek , and physic — the last of those corresponding to what we now know as medicine and basic sciences . Today , the University of Glasgow has fifteen Regius Professorships . Private individuals soon adopted the practice of endowing professorships . Isaac Newton held the Lucasian Chair of Mathematics at Cambridge beginning in 1669 , more recently held by the celebrated physicist Stephen Hawking . Endowed scholarship / fellowship . An endowed scholarship is tuition ( and possibly other cost ) assistance that is permanently paid for with the revenue of an endowment fund specifically set up for that purpose . It can be either merit - based or need - based ( which is only awarded to those students for whom the college expense would cause their family financial hardship ) depending on university policy or donor preferences . Some universities will facilitate donors ' meeting the students they are helping . The amount that must be donated to start an endowed scholarship can vary greatly . Fellowships are similar , although they are most commonly associated with graduate students . In addition to helping with tuition , they may also include a stipend . Fellowships with a stipend may encourage students to work on a doctorate . Frequently , teaching or working on research is a mandatory part of a fellowship . Financial operation . A financial endowment is typically overseen by a board of trustees and managed by a trustee or team of professional managers . The financial operation of the endowment is typically designed to achieve the stated objectives of the endowment . At universities , typically 4 - 6 % of the endowment ' s assets are spent every year to fund operations or capital spending . Any excess earnings are typically reinvested to augment the endowment and to compensate for inflation and recessions in future years . This spending figure represents the proportion that historically could be spent without diminishing the principal amount of the endowment fund . However , the financial crisis of 2007 – 2010 had a major impact on the entire range of endowments globally . Most notably , large U . S . - based college and university endowments , which had posted large , highly publicized gains in the 1990s and 2000s faced significant losses of principal across a range of investments . The Harvard University endowment fund , which held $ 37 billion on June 30 , 2008 , was reduced to $ 26 billion during the following year . Yale University , the pioneer of an approach that involved investing heavily in alternative investments such as real estate and private equity , reported an endowment of $ 16 billion as of September 2009 , a 30 % annualized loss that was more than predicted in December 2008 . At Stanford University , the endowment was reduced from about $ 17 billion to $ 12 billion as of September 2009 . Brown University ' s endowment fell 27 percent to $ 2 . 04 billion in the fiscal year that ended June 30 , 2009 . George Washington University lost 18 % in that same fiscal year , down to $ 1 . 08 billion . In Canada , after the financial crisis in 2008 , University of Toronto reported a loss of 31 % ( $ 545 million ) of its previous year - end value in 2009 . The loss is attributed to over investment in hedge funds . Quasi - endowments . A quasi - endowment , or fund functioning as an endowment , are funds merely earmarked by an organization ’ s governing board , rather than restricted by a donor or other outside agency , to be invested to provide income for a long but unspecified period , and the governing board has the right to decide at any time to expend the principal of such funds . Separately from the endowment versus quasi - endowment distinction , there ' s another 2 - way categorization of restricted and unrestricted , which focuses on the use of the funds . As an example , a quasi - endowment might be restricted by the donor to supporting the tennis team ; the use is restricted to one purpose , but the governing board could " invade principal " to support the tennis team . Criticisms . Officials in charge of the endowments of some universities have been criticized for " hoarding " and reinvesting too much of the endowment ’ s income . Given a historical endowment performance of 10 – 11 % , and a payout rate of 5 % , around half of the endowment ’ s income is reinvested . Roughly 3 % of the reinvestment is used to keep pace with inflation , leaving an inflation - adjusted 2 % annual growth of the endowment . Of course , many endowments fail to earn 10 - 11 % . Two arguments against inflation adjusted endowment growth are : Large endowments have been criticized for " hoarding " money . Most philanthropies are required by federal law to distribute 5 % of their assets per year , but university endowments are not required to spend anything . Many universities with very large endowments would require less than 5 % to pay full tuition for all their students . For example , it has been estimated that if in 2006 all the Harvard students had paid the maximum in tuition and fees , it would have amounted to less than $ 300 million . In 2007 , if Harvard had spent 5 % of its $ 34 . 6 billion endowment , all Harvard undergraduate and graduate students could have attended for free and the university would still have had $ 1 . 3 billion left over . It would require less than 1 % of the endowments of Harvard and Yale to allow all students to attend tuition - free ; Stanford , MIT , Princeton and Rice would require less than 2 % of their endowments and 29 other schools would require less than 3 % for all their students to attend tuition - free . Despite the decreasing values of endowments , congressmen , including Charles Grassley , have questioned whether the endowments are contributing enough to maintain their tax - exempt status . After reviewing work in developing nations by 50 higher education institutions with endowments over $ 1 billion , Peter Hotez of George Washington University has stated that " pharmaceutical companies are doing more for the poorest people [ in the world ] than most of our wealthiest universities . " Size . Financial endowments range in size depending on the size of the institution and the level of community support . At the large end of the spectrum , the total endowment can be over one billion dollars at many leading private universities . As an example , Harvard University has the largest endowment in the world with $ 32 billion in assets as of April 30 , 2012 . However , each university typically has numerous endowments , each of which are frequently restricted to funding very specific areas of the university . The most common examples are endowed professorships ( also known as named chairs ) , and endowed scholarships or fellowships . For instance , Harvard has 10 , 800 separate endowments . Socially and environmentally responsible investing . Many college and university endowments have come under fire in recent years for investing in practices such as " land grabs " in poor countries and high - risk , high - return investment practices that led to the financial crisis .