The financial crisis of 2007-2009 left elite university endowments with 30% less value, causing these universities to respond with dramatic budgetary restructuring. While endowments had received probing national and congressional attention in the months prior to the crisis, that attention largely gave way to the conventional view that universities were no longer able to meet their budgetary needs because of these endowment losses. This wisdom took hold despite the fact that elite universities still sat atop multibillion dollar endowments designed, at least in theory, to provide a cushion in times of financial distress.

This Note explores this puzzle by looking at the legal and financial restrictions placed on endowment spending. The Note finds that, arguments to the contrary notwithstanding, the law does not meaningfully restrict elite universities in their spending, largely because the law does not apply to unrestricted funds that compose almost half of elite universities’ endowments. A somewhat stronger explanation is financial: elite university investment in illiquid assets means that universities cannot cash out endowments to stabilize their budgets because of an inability to access those investments. I argue, however, that the financial explanation is still inadequate because illiquid investments likely accounted for a minority of each elite university’s endowment. The Note articulates a different theory of endowment value: universities use their endowments as a symbol of prestige and a point of competition between peer institutions. The cultural value of university endowments means that universities will strive to avoid endowment liquidation to the fullest extent possible, even, counterintuitively, in times when they need their endowment funds most of all.