What is an endowment? And why is it so important for Baylor?

Most Baylor Bears could tell you that the university’s endowment is some sort of financial figure — but beyond that, for many, it remains a bit of a mystery. Baylor’s endowment contains some pretty big numbers — $1.31 billion as of 2018 — but what does that number mean? And what is that money used for?

Here’s a quick Endowment 101 — covering both what it is, and what it isn’t:

1. Perhaps the most important thing to know — and the most common misconception — is that an endowment is not a bank account, with money just waiting to be used for any need that arises. In fact, the vast majority of the endowment is earmarked for very specific purposes, so Baylor can’t just pay for this or that new building out of the endowment, or tap into it to relieve financial stress. Money donated for a particular purpose can only be used for that purpose.

2. Instead, the endowment is an investment; important areas like student scholarships and faculty fellowships are funded each year using the annual return on that investment.

For example, let’s say someone gave $100,000 to be used for scholarships. You could use all that money in year one — just give it all away — and you’ll have given $100,000 in scholarships, but have nothing left for future years. Or… you could invest it in the endowment. Let’s say the return on that investment is about 10% each year. Half of that (5%) might be given to students as a scholarship each year (that would be $5,000 the first year), and the other 5% added to the investment to keep it growing. Do that year after year, and both your nest egg and your scholarship contribution will grow. After 15 years, students will have received even more than the original $100,000 in scholarships — all while not just keeping the nest egg intact, but having doubled both it and the amount of scholarship money given out each year, providing for students for generations to come.

3. The endowment isn’t really a single investment. In fact, Baylor has roughly 4,500 different endowed funds — scholarships, faculty chairs, professorships and other funds to meet specific university needs. Each is managed individually to best care for the funds according to the stipulations provided by the original donors.

4. Baylor has a team of professionals managing the endowment to ensure its growth. As recently as the 1970s, Baylor’s endowment was just $25 million. How did it grow to $1.3 billion? The professionals in Baylor’s Office of Investments have managed the portfolio with an eye toward stewardship and long-term growth. And they’re doing a great job — over the last 15 years, that team has outperformed the average U.S. endowment for the benefit of Baylor students, faculty and staff.

5. That $1.3 billion sounds like a lot, and provides for a lot of the university’s needs. But when you look at endowment per student, Baylor lags behind a lot of its peer institutions. That’s why the “Give Light” campaign is emphasizing endowed gifts — faculty chairs, scholarships and more — so that the funds raised today benefit students not only now, but for generations to come.

Want to learn more? Check out this recent “Baylor Connections” podcast with Dr. Brian Webb, Baylor’s chief investment officer, which essentially offers a 23-minute course in “Endowment 101.”

Sic ’em, Bears!