“3.8%
That does not sound like a very large return from the brightest money managers on the planet.”
My impression is that $1.4 billion did not represent all the annual earnings: it merely represented the share of endowment that the University was willing to allocate towards annual operating expenses, i.e., roughly one third of the total. 3.8% obviously is a very conservative figure especially in light of their actual annual earnings, which generally had been at double-digit levels for a considerable period of time.
IRS requires tax exempt 501(c)3 foundations to spend at least 5% of endowment on grounds that a) unless ineptly managed, a typical endowment should be earning well in excess of 5%, hence the 5% requirement still theoretically would allow the foundation to operate in perpetuity; and b) a foundation that simply husbands its earnings and never gives them away isn’t conferring any benefit on society, so why make it tax exempt? I don’t know what rules govern university endowments, but places such as Harvard and Princeton have endowments so large that they literally have enough funds to let every one of their students attend for free in perpetuity, if they were so inclined.
I guess I was mislead by the word earnings in the sentence but that may not really be earnings from the 36.9 billion.