2014 - 2015: Yale University Finance Annual Financial Report

Yale University finished the year ending June 30, 2015 with strong financial results. Strong Financial Results For the year ending June 30, 2015, in large part due to the recognition of revenue for the extraordinary pledge from Charles Johnson ’54 for the construction of two new residential colleges, Yale generated a surplus on a GAAP basis of $194 million from operations. On a Management View basis – the way Yale looks at financial information for internal discussion and decision-making purposes – Yale generated a surplus of $17 million from operations. Without the extraordinary item related to the residential colleges, the 2014-15 operating surplus on both a GAAP and a Management View basis was in line with last year’s results. Yale’s operations remain strong thanks to prudent financial management practices and the generous support from alumni and friends that have allowed Yale to carry out its mission of teaching and research with excellence for over three centuries. Net assets finished the year at $27.4 billion, an increase of $1.6 billion or 6.1% over the prior year primarily due to the 11.5% investment return generated from the Yale Endowment, managed expertly for over thirty years by Chief Investment Officer, David Swensen. Yale’s balance sheet remains strong, providing a stable platform from which to carry out the varied and important mission it supports. An Accessible and Affordable Education For over fifty years Yale College has accepted students without regard to their financial need and has met the full demonstrated need of every admitted student. Yale College families whose gross income is less than $65,000 (with typical assets) are not expected to make a contribution towards the cost of their child’s Yale education. The average cost of attendance for a Yale College student on financial aid was $17,328 per year in 2014-15 or approximately 27% of the “sticker price” – an amount lower in inflation-adjusted terms than a decade ago. Only 17% percent of Yale College students chose to take out a loan during their undergraduate careers, and the average loan amount upon graduation was less than $16,000. This policy of need-blind admissions has been extraordinarily successful as demonstrated by Yale’s diverse and talented students and alumni. This has made Yale accessible and affordable even though in financial terms it means only a small portion of Yale’s annual revenue comes from tuition, room, and board net of financial aid. If a relatively small proportion of revenue comes from tuition, how does Yale finance the cost of education – while keeping net tuition and student debt at comparatively low levels? The answer is generous gifts from donors to support financial aid – and the Yale Endowment. Funding Teaching and Research for Current and Future Generations The Yale Endowment provides over $1 billion in revenue each year (32% of total revenue in 2014-15), the single largest source of funding for Yale University. The Yale Endowment provides important funding to every school and department on campus, supporting the widest array of activities: financial aid, faculty salaries, residential colleges, classrooms, laboratories, lab supplies, journals, artwork, health care and retirement benefits, utilities, administrative support, and many other costs of teaching and research. Yale’s policy for spending from the endowment balances the needs of current and future students and scholars. It provides a stable flow of income to the current operating budget; and it protects the real value of the endowment over time so that future generations of scholars can benefit from a similar stable flow of income. The $1.1 billion Yale is spending today is nearly double what it was a decade ago and more than five times what it was in 1997, the year many of the students in this year’s freshman class were born. Yale is committed to being a responsible steward of this important asset, and that means neither over- nor under-spending. In order to provide that support the endowment must generate sufficient investment returns to replace both the $1+ billion spent each year and also enough to keep pace with inflation. That requires an investment return of roughly 8-9% on average at current inflation rates just to fund the same level of financial aid, teaching, and research as during the preceding year. That type of return would be the envy of most investors. Fortunately, Yale’s Investment Office has been able to meet and even exceed that level over long periods of time. That is why Yale was able to spend such a large amount from the endowment to pay for teaching and research in 2014-15. Yale is fortunate to have such a successful and sizeable endowment, and we are grateful to our generous alumni and other supporters who entrust us with these precious resources. They allow Yale to spend a generous amount each year while requiring prudent management to assure it is available to fund teaching and research conducted by future generations as well. Leadership During 2015, several of the University’s top leaders stepped down after long and distinguished careers. Vice president and general counsel Dorothy Robinson retired from Yale after more than 36 years of outstanding service to the University, vice president for global and strategic initiatives Linda Lorimer announced her retirement after nearly 30 years of dedicated service, and vice president for finance and business operations Shauna King stepped down on August 31, 2015 after effectively leading Yale through the 2009 financial crisis. All three leave the University a better place than when they came, and for generations to come the University will benefit from their dedicated service. In March, the leadership team welcomed Alexander Dreier, an accomplished attorney with an international practice in higher education, as Yale’s next vice president and general counsel. On September 1 I assumed my new role as vice president for finance and chief financial officer, and a search is underway for a senior vice president of operations. President Salovey also announced that in 2016 Ann Kurth, an expert on global health currently at New York University, will join Yale as the new dean of the school of nursing, and Deborah Berke, architect and founder of the New York-based design firm Deborah Berke Partners, will become the new dean of the school of architecture. The leadership team is well positioned to carry out Yale’s important mission in the coming years. Looking Ahead Yale had a successful year academically and financially thanks to the excellence that surrounds us – our faculty, students, staff, alumni, donors, the City of New Haven, and other members of the Yale community. For highlights from the year, please visit Yale News (news.yale.edu). Looking ahead, the external financial environment poses substantial challenges that Yale will need to manage. The funding for health care and research in the United States remains under pressure, and Yale will need to adapt since these are the two largest revenue sources after the endowment. Even so, as President Salovey stated, “We need to open up the financial space necessary to do the things we want to do — space so that we can pursue the new initiatives that will propel Yale forward.” Some of these new initiatives are already visible around campus. When visiting New Haven, you can see the two new residential colleges rising up on Prospect Street. The new colleges are scheduled to open in the fall of 2017 and will be the first expansion of the residential college system since 1961. Work is also underway on the new Center for Teaching and Learning, the renovation of the Hall of Graduate Studies, a new science building, as well as the new Schwarzman Center, a gathering place for both undergraduate and graduate students made possible by the generous $150 million gift from Stephen A. Schwarzman ’69. Each of these presents an opportunity to create spaces and programs that inspire and reimagine teaching and research for the 21st century. As always Yale is a place with ideas and opportunities in abundance, and that will require difficult choices about which to pursue. Our focus will remain on investing in Yale’s core mission of teaching and research. I look forward to updating you on Yale’s progress in the years to come.

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