Brown’s endowment crosses tax threshold

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Due to returns of 51.5% on Brown’s endowment in fiscal year 2021, Brown has now joined a handful of universities that pay taxes on their endowments, according to Bloomberg.

With his recent growth, Brown is joining universities such as Harvard, Princeton, Yale and Stanford to qualify to pay taxes on his endowment. The Endowment Tax, the details of which were finalized in 2020, was created under Section 4968 of the Tax Cuts and Jobs Act passed in December 2017.

The legislation “imposes a 1.4% tax on net investment income at private colleges and universities with at least 500 tuition-paying students and assets of $500,000 per student,” according to a statement on behalf of the National Association of College and University Business Officers, an organization advocating for the financial interests of higher education institutions, provided to The Herald by Ken Redd, senior director of research and policy analysis at NACUBO.

In October, The Herald reported that the University’s endowment had grown to $6.9 billion, increasing investment earnings by $2.4 billion and donations by $120 million.

“With the outstanding endowment performance at the end of fiscal year 2021, Brown crossed the excise tax threshold for the first time,” university spokesman Brian Clark wrote in an e-mail. mail to the Herald. “Based on year-end numbers for FY21, we came to approximately $796,000 in total investments per student.”

NACUBO’s statement said “the net investment income tax levied on certain private universities is unprecedented in that it taxes charitable resources” and “it diminishes the funds available and directed by donors to the financial aid, research, academic support, public service and innovation.”

Brad Gibbs ’93 MA’18, a lecturer in the Department of Economics, said the endowment is “like the University savings account” and “the interest and returns on that account, called the draw , finance part of the current expenses of the University budget.”

Gibbs said the tax is unlikely to impact Brown’s investment decisions in the future.

“The team has a very clear view of how they think about capital allocation – they need to focus on delivering absolute returns,” Gibbs said. “At this point, the tax is not in their control and it’s not something they can manage, so I suspect it would be stable over time.”

“The people who manage the endowment are stewards of Brown’s future,” Gibbs said. “They must always strike the right balance between being careful about the size of the draw and ensuring the endowment continues to grow in order to serve future generations.”

According to an October University press release, the increase in the endowment reflects a pattern of growth in recent years. The average annualized returns of the university endowment were 24.1% for the last three years and 12.9% for the last ten.

“It’s really been an extraordinary performance that the investment office has been able to generate,” Gibbs said.

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