The University of Chicago is selling a historic research institute for $375 million as it confronts a budget deficit exceeding $200 million. This move is part of a broader strategy that includes $100 million in spending cuts and reductions to graduate programs, prompted by years of high debt and underperforming endowment returns.
Key Takeaways
- The University of Chicago is selling the Center for Research in Security Prices (CRSP) for $375 million to bolster its endowment.
- The university faces a budget deficit that has grown to over $200 million.
- Measures to address the shortfall include $100 million in spending cuts, a pause on faculty growth, and scaling back some PhD programs.
- Financial pressures stem from a $6.1 billion debt load and endowment returns of 6.7% over the last decade, lagging behind peer institutions.
University Responds to Financial Strain
The University of Chicago has confirmed the sale of its Center for Research in Security Prices (CRSP), a highly regarded institution founded in 1960. A university spokesman stated the $375 million from the sale will be added to the university's endowment to improve investment returns. The transaction is anticipated to be finalized in the fourth quarter of the year.
This sale follows an announcement of significant cost-saving measures. The university plans to implement $100 million in spending reductions and will suspend or reduce several PhD and graduate programs. These actions are designed to manage a deficit that has expanded rapidly in recent years.
"The fact that they have to sell a celebrated part of the university now is very telling of how poor their fiscal situation is," said Hunter Lewis, co-founder of the investment advisory firm Cambridge Associates.
Roots of the Financial Challenge
The university's financial difficulties are linked to several factors, including its investment strategy and borrowing habits. The institution's $10 billion endowment, a crucial revenue source, has seen an annualized return of just 6.7% over the ten years leading up to 2024. This performance is among the weakest for major U.S. universities.
A Conservative Investment Approach
According to Ivan Samstein, the university's chief financial officer, the endowment has historically maintained a more conservative position than its peers. Since the 2008 financial crisis, UChicago has held a larger portion of its assets in fixed income and less in equities.
"If you look at our audits and rating reports, they’ve consistently noted that we had somewhat less market exposure than our peers," Samstein explained. "That led to less aggregate returns over a period of time."
Digital Asset Investment
Despite its generally conservative stance, the university's financial statements show a $64 million investment in cryptocurrencies in 2021. Samstein noted that the value of these holdings had "well more than doubled," though the investment has not yet provided cash distributions.
Aggressive Expansion and Debt
A major contributor to the financial pressure has been a significant increase in borrowing to fund expansion. Over the past decade, the university's outstanding debt grew by approximately 66%, reaching $6.1 billion by 2024. This capital was used to invest in new research fields, including molecular engineering and quantum science.
While these investments were intended to enhance the university's prominence, they also created long-term financial obligations. Clifford Ando, a classics professor at the university who has examined its finances, pointed out the challenge.
"The borrowing generated buildings," Ando said. "With the buildings come operational expenses that the university has not figured out how to fund."
Between 2021 and 2024, the university's budget deficit increased tenfold, raising concerns about its financial stability. A May report from the rating agency Fitch described the university's available funds relative to its debt as "somewhat modest" compared to other institutions with similar AA+ ratings.
External Pressures and Cost-Cutting Measures
In addition to internal financial decisions, the university has also faced external headwinds. Reductions in federal funding have added to the fiscal strain. Since the Trump administration took office, federal agencies have withdrawn approximately 65 grants previously awarded to University of Chicago faculty.
Impact of Federal Policy
The university projects an immediate revenue loss of $10 million to $15 million in fiscal year 2025 due to these changes. The long-term shortfall could exceed $40 million annually starting in 2026.
In a message to faculty, University President Paul Alivisatos addressed the issue. "The profound federal policy changes of the last eight months have created multiple and significant new uncertainties and strong downward pressure on our finances," he stated.
A Plan to Restore Balance
To address the deficit by 2028, the university has outlined a clear cost-cutting plan. The key components include:
- Pausing the growth of faculty positions.
- Reducing enrollment in certain PhD programs.
- Scaling back planned capital projects.
- Decreasing funding for some research centers.
Katherine Baicker, the university's provost, described the approach as a strategic reallocation of resources. She said the university was "taking the time to wind things down" in some areas while continuing to invest in high-priority fields like quantum computing. "It is a slower spending growth than it would otherwise be," Baicker added.
However, some analysts believe more fundamental changes are needed. Hunter Lewis suggested that selling the research center is a temporary fix. "The sale itself doesn’t solve the structural problem at all," he said. According to Lewis, long-term financial health will require controlling debt and improving endowment performance.
