Brown's Endowment Heads Into the 4% Excise Tax Tier: A GP Playbook for Pitching Taxed Universities

Brown University said on 9 October 2026 that, because its endowment has grown, it will enter the 4% tier of the federal excise tax on university investment gains in fiscal 2027. A year earlier it had said its per-student endowment value kept it in the 1.4% bracket. The change follows the tax overhaul Congress passed in July 2025, and it matters for any manager who raises money from university endowments. This playbook sets out how the tiers work and what a GP can do about them. Brown's results are covered in our note on its 19.6% fiscal 2026 return and CIO handover.

How the tax works

The 2025 tax act replaced a flat 1.4% excise tax with three rates, applied to an institution's net investment income and set by its "student adjusted endowment". That figure is the fair market value of the institution's assets, leaving out those used directly for its exempt purpose, divided by its number of eligible students. The rate is 1.4% above $500,000 per student and up to $750,000, 4% above $750,000 and up to $2 million, and 8% above $2 million. The tax covers institutions with at least 3,000 tuition-paying students, up from 500 under the earlier law, where more than half of those students are in the United States and which are not state colleges or universities. It applies to tax years beginning after 31 December 2025. By our arithmetic, $100 of net investment income now costs $1.40, $4.00 or $8.00 in tax depending on the tier.

What Brown disclosed

Brown's 9 October release says the endowment rose from $8.0 billion to $9.5 billion and returned 19.6% in fiscal 2026, and that growth moves it into the 4% tier from fiscal 2027. It did not say what it expects to pay. The endowment contributed a record $357 million to the operating budget, 24% of fiscal 2026 revenue, so the university leans on distributions. Its history also shows how quickly a tier can change: a year ago it said it sat in the 1.4% bracket, and after a year in which market value grew about 19%, it expects to pay at 4%. Any university whose endowment grows faster than its student count can make the same move. That is the practical link to a GP: a university that depends on its endowment for a quarter of its revenue, and that now pays more tax on investment income, will look closely at the cash a manager returns and at what it keeps after costs.

A five step playbook

This section is our advice and not something Brown or the tax law says. First, map your university targets by tier. Divide each endowment by its student count to get a rough position against the $750,000 and $2 million lines, and flag schools near a boundary, because a move from one tier to the next changes how much of each dollar of income they keep. The legal calculation has exclusions, so treat this as a screen and not a conclusion. Schools with fewer than 3,000 tuition-paying students, and state institutions, fall outside the tax altogether, so the pitch to them needs no tax angle. For the rest, a tier is a good reason to revisit your target list each autumn and not only at a fund launch.

Second, lead with cash. Prepare a one page view of your distribution history by DPI, your pacing of capital returned in years three to eight, and your realised proceeds by vintage. Our playbook on raising a fund while LPs wait for distributions shows how to present it.

Third, show net outcomes. Report returns after fees and carry, and be ready to explain how much of a return is realised income and how much is unrealised value, because an investor judging a manager by what reaches its budget will ask. Do not claim to know how any gain is taxed for the university.

Fourth, ask before you pitch. A short question to the investment office, such as how it is thinking about distributions over the next three years, tells you whether the new tier is changing its pacing and shows you have read the news. Keep the question open and short, and do not suggest what the tax should mean for the university's strategy. Our note on what to send a CIO after an endowment result gives a template for the follow up.

Fifth, respect the calendar. Brown said its CIO, Jane Dietze, leaves at the end of 2026 and deputy CIO Joshua Kennedy takes over, so a Brown decision is more likely to follow the handover than to precede it. Other universities will report results through October, and each report is a reason to write.

What to watch next

Watch how other universities describe their tier when they publish results, and whether any report a change in payout or in commitment pacing. Leave tax advice to the university's own advisers, and make sure your materials do not give it. This is not tax or legal advice. FundLinx members can see which endowments are allocating this quarter.

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