Colleges and Universities Work to Build Endowments After RecessionMay 6, 2013 |
by Reginald Stuart
When Barbara Miller joined North Carolina A&T University as its chief advancement officer, she was tasked with helping the university boost its endowment to $75 million by 2020 by raising some $40 million between now and then.
A&T, as the Greensboro-based state university is commonly known, is in many respects a mirror of what has happened in recent years to many public and private institutions across the nation.
A&T has seen a steady decline in annual state funding as budget-cutting lawmakers regularly slash funding for higher education. Federal funding has become harder to come by, with few exceptions. Alumni, never big givers, have been wrestling with their personal financial fallout from the Great Recession. Other private donors, from corporations to foundations, have been belt-tightening, even as they recover from the recession.
“That means we have a lot of work to do,” says Miller, putting her university’s fundraising goal in the real world landscape of challenges facing higher education. “We have an opportunity to grow,” says Miller. She and her full-time fundraising staff of four and other university officials are hard at work on an intensive fundraising plan.
“The endowment is critical, absolutely critical,” says Miller, who was appointed vice chancellor in the university’s office of advancement last year. “The endowment is the future of the university,” she says.
As outside sources of funds level and decrease and many institutions try to hold the line on boosting tuition and fees, the income from endowments is increasingly being looked to as a future source for closing funding gaps for scholarships, fellowships, supplements for teachers and researchers and various light and water expenses.
While billions of dollars are socked away in endowments at institutions of higher learning across the nation, most of it is in the hands of a small number of institutions, and nearly all of it stays in some sort of savings investment, regardless of institution.
Nationwide, 72 institutions of higher learning have endowments of $1 billion or more, led by a short list of long-established names—Harvard ($30.4 billion), followed by Yale, the University of Texas, Princeton and the Massachusetts Institute of Technology (MIT), according to a recent study of educational endowments released by the National Association of College and University Business Officers (NACUBO) and the Commonfund Institute, the research arm of the nonprofit manager of endowments.
Most institutions with a history of serving minorities do not participate in NACUBO’s annual survey. Among those that do, the fiscal year 2012 endowments are much smaller, led by Howard University ($460 million), Spelman College ($309 million), Hampton University ($232 million) and Meharry Medical College ($112 million). Tuskegee University, which does not participate, reported that its fiscal year 2012 endowment stood at $105 million.
As a general rule, institutions take 3 to 5 percent of their annual endowment earnings for annual operating budgets and reinvest the rest of that year’s earnings into the endowment. That helps the principal—and thus the institution—grow over time.
“We aren’t just looking out for today,” says Dr. William Harvey, president of Hampton University. “We’re looking out for the next 10 years, the next 20 years. Students see all this money in the endowment and want to get more.”
“You need to make decisions of what’s best for your institution, not for the moment,” says Harvey, who has built his university’s endowment to more than $250 million from the $29 million it had when he started as president more than 30 years ago. The university policy is to take no more than 3 percent of its earnings each year from its endowment.
While Harvard, Yale and Princeton have a history of wealth and power on their side when they pursue fundraising, institutions with a history of serving minorities and first-generation college students from families with low or moderate incomes have a much different set of challenges when trying to boost their endowments.
First, there is the job of educating donors, as most of their donors have no legacy of giving to institutions of higher learning, say those interviewed. Then there is the reality that most of the first-time donors cannot afford to give much, and others who can give more, such as alumni, don’t give what they can. Meanwhile, the costs of a college education and the growing need for more aid via private donors continue to soar, university officials say.
“It’s a very difficult playing field now,” says Thomas J. Haynes Jr., vice president for university advancement and executive director of the Florida A&M (FAMU) Foundation. The fundraising hits the road at such schools as FAMU, where $80 million of its $117 million is scattered among 400 small endowment accounts, and nearly all of those funds are earmarked.
At FAMU, its image tarnished by repeated isolated illegal incidents of student hazing and its revenues hurt by a more than 30-percent cut in state funding over the past five years, fundraising for the university endowment is as focused as ever, says Haynes. He adds that the endowment and foundation leaders are exploring a range of ideas for the future, including whether to embrace the idea of a fundamental shift in allocating earnings to a “real returns” policy that allows the university to draw all endowment earnings each year, rather than a very small percentage. The “real returns” approach has its dangers, Haynes says, noting there is no rush to make such an earnings distribution change.
Despite having “pretty sophisticated” donors who understand the university’s needs, Haynes says a large share of FAMU and other HBCU supporters, particularly alumni and their peers, “have gone through such a terrible [economic] time, they may not have the money to give” today. “We’re at a time now that is forcing us to rethink how we’re doing business.”
A new message
Supporting endowments is rapidly emerging into a message for the masses from one tailored largely for high-income and wealthy donors, corporations and foundations. Strategies run the gamut, depending on an institution’s goals and capabilities.
Tuskegee, whose endowment slumped with most others around the country during the Great Recession (its value hit a low of $67 million from a previous high of $100 million) before rebounding in the past 12 months, last year launched a five-year, $250 million comprehensive capital campaign with 25 percent of the anticipated revenue earmarked for its endowment.
“It’s critical that we reach out to enhance the endowment,” says Tuskegee’s president, Dr. Gilbert Rochon, noting that the university endowment supports the university’s veterinary medicine program, professorships, historic preservation and scholarships.
In addition to raising money from donors for its endowment and earning money, like most schools, through a diversified portfolio of stocks, bonds, real estate and emerging market investments, Hampton has, over the years, sought to boost its endowment by investing millions of dollars into promising local business ventures.
Like endowments at most mid-sized and smaller institutions, Hampton’s endowment funds are largely limited to scholarships, fellowships and aid for faculty. At the same time, it has small amounts of endowment funds for emergency loans to students and grants to the university’s leadership institute for aspiring administrators.
At the University of Texas San Antonio (UTSA), one of the nation’s largest predominantly Hispanic public universities, its $92 million endowment got a hefty start when a woman with no relationship to the institution bequeathed it $32 million in assets to fund scholarships. Sustained enthusiasm around San Antonio has since helped the endowment grow since the university’s start in 1969, says Marjie French, UTSA vice president for external relations and chief development officer.
Today, French says, UTSA officials are using a “two-pronged” approach to accelerating “young” UTSA’s plan to grow into a major Tier I research institution.
Running parallel with its $120 million capital campaign, which was pegged to run until 2015 but has already been surpassed, USTA has annual giving efforts targeted to specific immediate needs related to its expansion goal. In the past year, it has persuaded two San Antonio donors to award it grants of $2.5 million each that will be matched dollar for dollar by the state.
Comparing the two grants to “start-up money” for a new venture, French says the recent gestures “show you matching money really works if you can get a community behind you.” The endowment, she says, helps ensure that what was funded by the “start-ups” is sustainable.
“It’s about the generosity of San Antonio,” says French, noting that most of the 31,000 students at UTSA are first-generation college students who come from households with modest economic abilities.