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While Stanford responded to the federal funding research freeze by halting administrative hiring and protecting research, the University of Chicago panicked.
On January 28, hours after the Trump administration announced the first round of grant cancellations (which was later scaled back before being renewed last week), UChicago administrators sent out an alarming directive to researchers at the school:
“We are requesting that all University researchers working on federal grants temporarily suspend their non-personnel spending on [sic] federal grants as much as possible during this period of substantial uncertainty. For example, do not make any additional spending commitments, purchase new supplies or equipment, start new experiments, embark on funded travel, etc.”
The message was rushed—complete with a typo and an unfinished thought—underscoring the university’s desperation.
Within hours, research came to a standstill. Labs fell eerily silent, and my group chat with friends at UChicago exploded with confusion as students wondered what would happen to their research positions.
UChicago has since walked back their directive, sending a clarifying email that researchers could resume normal spending, unless they’d received a specific directive otherwise. However, behind the scenes, the situation remains dire: Labs have received orders to downsize, faculty are being paid out to retire early, and fear and uncertainty pervade the academic community.
This isn’t the first time the university has reacted sharply to budgetary pressures. In the past few years, UChicago has intermittently become need-aware in admissions, an alarming admission of financial weakness for a university that aspires to compete with the likes of the Ivies and Stanford.
UChicago’s financial position is clear: Unlike near-peer institutions, its endowment is not large enough to sustain its spending and debt. The university carries nearly $6 billion in debt while running annual budget deficits exceeding $200 million, all on an endowment three times smaller than Stanford’s. To compensate, the university has focused on expanding lucrative certification programs, increasing donations, raising tuitions, and cutting costs, though many faculty and students viscerally disagree with the administration on which costs to cut.
Yet these debates neglect the most important factor: the UChicago endowment’s weak returns, driven by poor investment decisions.
Possibly the most notorious example is the university’s foray into cryptocurrency. Four sources, as well as widespread campus rumors, allege that the university lost tens of millions investing in crypto around 2021. Given UChicago’s extraordinary 37.6% endowment gain that year, far beyond what conventional investments would have yielded, it’s likely they took significant risks. But if those gambles paid off in the short term, they quickly unraveled.
UChicago’s endowment remains lower today than in 2021.
Granted, UChicago isn’t entirely alone in this dubious achievement. Yale’s and Harvard’s endowments have recovered since 2021, but Princeton’s and Stanford’s have not, though in Stanford’s case the decline is primarily due to endowment drawdowns increasing over the past three years. Yet even amid its peers’ poor performance, the UChicago endowment stands out for its particularly weak returns.
Losing this much money is actively impressive; both the stock market and bitcoin hit all-time highs well after 2021.
UChicago doesn’t disclose investment performance or allocations by asset class, making it difficult to pinpoint exactly what went wrong. However, its target allocations reveal its ideal allocation to private debt and “absolute return” investments, including alternative assets like crypto, fell from 25.5% in 2020 to 20% in 2022, hinting at a rout in risky alternative assets.
But beyond this conspicuous crypto failure, UChicago’s endowment returns are abysmal. From 2013 to 2023, UChicago’s endowment returned just 7.48% annualized, versus 12.8% for the stock market and 10.8% for Ivy League schools.
Had UChicago simply matched the market, its endowment would be $6.45 billion larger today—more than enough to repay its entire debt. Obviously, universities cannot just track the market, as they must hedge for downturns to maintain financial stability. But even if UChicago had only matched its Ivy League near-peers, its endowment would still be $3.69 billion larger. That’s enough to cover its current budget deficit for the next 15 years.
Compound interest truly is the eighth wonder of the world.
These figures are idealized, of course. Endowments experience drawdowns, and not all endowment funds can directly cover the university’s operating budget.
The point still stands. A top-10 university, renowned for pioneering modern economics—and an eponymous school of thought that emphasizes fiscal restraint—should at least match its peers’ fiscal discipline and investment performance, let alone the market. It has failed to do even that.
“Forced” by financial constraints, UChicago hikes tuition, phases out tenure-track positions, underpays contingent employees, and struggles to fund its research labs, all while its endowment returns half the market average. Tragically, this destructive austerity—which ruins livelihoods, damages research, and guts the university’s academic mission—amounts to mere penny-pinching compared to what could be gained from ensuring its investments perform at even a passable level.
This is nowhere near just a UChicago problem.
The 21st century’s cruel irony is that even as a wide range of essential American institutions—universities like UChicago, but also hospitals and health insurers—increasingly sacrifice their duties to society on the altar of asset accumulation, they fail at accumulating assets.
These financialized institutions are eroding American livelihoods, extracting from their workers and stakeholders, whether they be research professors or employees with pensions, while failing to deploy hoarded capital productively. The far more effective, and morally responsible, path is not austerity or exploitation, but competent investment that generates long-term economic value, allowing these institutions to sustain themselves without gutting the very people they exist to serve.
