As any Princetonian who has followed the fates of Goldman Sachs and other bulge-bracket investment banks would know—given the 100 first-round interviews that Goldman gave out for summer internships, I’m assuming this group is sizeable—an increasingly disproportionate amount of these firms’ profits have been generated by trading activities, instead of investment banking. Now at Goldman, over 65% of the firm’s revenues and even more of its profits are generated by three groups: prop-traders, who operate internal hedge-funds using firm capital; merchant banking divisions, which uses firm capital for private equity ventures; and market makers. So, investment banking, Goldman’s traditional bread and butter, has fallen in importance and contributes a mere 15% of the firm’s revenues.

Why am I telling you this in a Nass Weekly article? The answer is as follows: just as Goldman Sachs has stopped being primarily an investment bank and is largely an internal hedge-fund with I-banking advisory services and an investment management division on the side, Princeton University has ceased being primarily an institution of higher learning and is, like Goldman, a huge hedge-fund with a university that it runs as a side project. The reason for this allegation is Princeton’s enormous and constantly growing endowment.

There are many reasons for a university or any other not-for-profit to build up an endowment. Consider the Bill and Melinda Gates Foundation, which is endowed with over $34 billion of capital. Though this endowment is larger than Princeton’s, which is a comparatively paltry $14 billion, the Gates Foundation’s ambitious three-part focus on global health, global development and domestic education places large demands on the endowment’s capital. The large pledges made thus far indicate that the foundation will require even more capital to reach its goals.

Princeton, though, has an incredibly cautious and conservative rule about endowment spending. Regardless of the return on the endowment, annual spending can only increase by 4 or 5%, which means that if the endowment returns 35%, as it did in 2000, over 30% is reinvested. It is easy to understand why Princeton would be so cautious with endowment spending; however, what is truly shocking is that Princeton has been spending well under the incredibly conservative targets that it set for its endowment spending. The bias is clearly towards growing the endowment, as only 3% of the endowment is spent annually, while the average annual return on endowed capital has been 15.6% for the last 10 years. The question I ask, though, is why have this bias at all? Even more pertinently, why embark on a new and ambitious $4 billion capital campaign, given the fact that the Trustees have nothing to spend it on?

Consider what Princeton could do with its $14 billion (ignoring for a second the desire to raise $4 billion more in endowment gifts). One might surmise that growing the endowment would help build new residential colleges or world-class art communities. However, one would be mistaken. Projects like Whitman College and the art community that Princeton undertakes are funded almost entirely by non-endowment gifts given for the specific project in question.

Alternatively, the endowment might exist in the service of Princeton’s egalitarian aims of offering need-blind admissions and unparalleled financial aid. If this sounds right, then think again, because even if Princeton paid every undergrad’s tuition in full (which it doesn’t, because of existing financial aid), then the university would only need $200 million dollars, which represents less than a 1.5% return on the endowment. The current endowment could pay every student’s tuition with room and board, from those who are dirt poor to those who are rich as Bill Gates himself, without exceeding the conservative endowment spending objectives. In fact, the annual operating budget of the entire University in the past year was a fraction of the annual return on the endowment’s capital.

Given that endowment spending is so small, and that small increases in endowment spending could completely replace any and all revenues brought in by the University through tuition, we can see how Princeton University is dwarfed by PRINCO, the investment company that manages the firm’s—I mean, the school’s endowment. This is what makes me believe that the Princeton Leviathan is dominated by the hedge-fund-like activities associated with the endowment and that the matter of operating a world-class research university is very peripheral. Money talks, and instead of using money to eradicate tuition (or at least 20% room and board increases), Princeton is reinvesting and embarking on a $4 billion push to raise assets under management. The implications of this are large for both the hedge-fund world and the world of higher education (at least for the Ivy League schools that are not Cornell or Brown, which each have pitifully low endowments). If Princeton successfully raises the $4 billion, then its $18 billion-plus endowment would let it join Harvard, Yale and Stanford on the list of the largest hedge funds in the world. It seems that, in short time, the US News “top university” rankings will be less important than Trader Magazine’s “largest hedge-fund” rankings.

So, it seems that Princeton is, or already has become, a private pool of capital run more like a hedge-fund than a University. In fact, as an aspiring hedge fund manager myself, it makes me wonder if applying to PRINCO next year is a good career move instead of selling myself as an Excel-proficient slave to a bulge-bracket bank. If we could find someone to take these billions of fees, then maybe the Princeton endowment could truly serve some practical use; something like building a world-class private art collection or breaking plans on another 30,000 square foot palace would be in order. Whether or not the idea of Princeton as hedge fund disgusts or intrigues you, the question of what purpose the endowment serves is a relevant one.