The Race To The First Billion Dollar HBCU Endowment: Can Anyone Catch Howard?

By William A. Foster, IV

Whenever I may be tempted to slack up and let the business run for awhile on its own impetus, I picture my competitor sitting at a desk in his opposition house, thinking and thinking with the most devilish intensity and clearness, and I ask myself what I can do to be prepared for his next brilliant move. – H. Gordon Selfridge

There will be a lot of excitement whenever an HBCU finally reaches the magical one billion dollar endowment plateau. It will be unfounded excitement, but there will be excitement. By now, multiple HBCUs should have achieved billion dollar status, but a mixture of desegregation, poor financial literacy even among our educated alum, and arguably poor communication historically between the institutions themselves and alumni about the endowment and its value have stymied the growth of HBCU endowments. Many have the attitude that their attendance and tuition is all the “giving” they need to give to their HBCU. Some argue bad experiences while during matriculation also has made alumni adverse to giving, but that logic can be a bit dunce and short-sighted. This is because many of the poor experiences that the alum experienced were often a result of poor resources available to train staff better and antiquated software. Alas, this is not to remove the institutions’ responsibility. They certainly deserve their share for not making customer service the number one, two, and three priority. Too many HBCUs still are stuck in mimic mode of their HWCU counterparts in strategic behavior. This includes institutional outreach and advancement where often HBCUs did not and do not pay attention to the cultural differences in giving patterns between African Americans and other groups.

HBCUs in general lack a pool of high-quality and transformative donors. We define the former as “high-quality donors who give consistently and over their lifetime will probably give six to seven figures of donations” and the latter as “donations from transformative donors range from eight to nine figures.” The top ten donations to colleges last year were a combined $2.5 billion with Phil and Penelope Knight, the owners of Nike, putting $500 million in the lap of University of Oregon. HBCUs have missed accessing high-quality donors in the world of hip-hop and entertainment in my opinion at times because they have not wanted the association that comes with many of these artist and their image. Meanwhile, schools like Rice and Harvard University have welcomed the likes of Bun B of UGK and Nas into their wombs, respectively. The latter actually having a fellowship named after him at Harvard. This has cost HBCUs in terms of both finances and publicity. Publicity that is strongly needed to make up for the imbalance in being able to recruit today’s students also known as future donors.

So who is in the running to reach the billion dollar mark? Howard University comes in with the largest endowment at $513 million, which puts it a full $186 million ahead of number two rival Spelman who has a $327 million endowment. In third place, Hampton University with an endowment of $254 million and trailing Howard’s endowment by $259 million. Other notables who are long shots in the race are Meharry Medical College, Florida A&M University, and Tuskegee University with endowments of $124 million, $115 million, and $105 million, respectively. Before anyone ask where is Morehouse and its $130 million endowment, current president John Wilson himself pointed out that in terms of endowment-expense ratio, Spelman is 4:1 and Morehouse is at 1.3:1. Needless to say, while Morehouse needs to desperately build its endowment it appears to have bigger concerns that could leave it too unfocused to be a legit player. These are all of the HBCUs who have at least $100 million endowments. After them the drop off is so acute that it would take a transformative donation for any kind of consideration.

The big 3 of Howard, Spelman, and Hampton all have unique advantages and problems. Howard’s biggest advantage other than being halfway there is the Howard University Endowment Act sponsored by Dan Quayle in 1984. The act currently grants Howard $3.6 million currently in a matching endowment grant. According to Govtrack, “Requires the University, in order to receive such a grant, to deposit in the endowment an amount equal to such grant.” In other words, Howard University is working with a 1:1 match. What is not clear in the bill is if it is limited to specific type of donations from donors. If it does not have limitations, then that is one heck of a weapon. The school is also the only HBCU that is a full-service HBCU meaning it has both a medical school and law school. Something that allows it to produce higher earning alum than its counterparts. Unfortunately, with the good comes some bad. Howard has recently been in the news recently with downgrades by credit agencies for its debt, cutting about 200 staff positions, and public fighting between trustees in the media. Spelman, ranked number two, definitely benefited from what is today valued at a $40 million gift from Bill and Camille Cosby in 1988. An amount equivalent to 12 percent of today’s endowment. You can look at that as glass half full or empty. Full in that they have secured a transformative donation and could again or empty that to this day it still comprises a disproportionate amount of their endowment. On the negative, Spelman has struggled the past few years with their ROI returns for their endowment. The ROI ranking was been the lowest among all top ten HBCU Money endowments in 2013. There seems to be some serious questions about conflicts of interest with Spelman’s board of trustee, Theodore Aronson, who is also the head of their investment committee, his company AJO, and some of Spelman’s investments which have not faired near as well as other HBCUs over the past few years. That could allow Hampton to push pass who trails Spelman by $73 million. Another headwind facing Spelman is the lack of a graduate school which aforementioned in regards to Howard produces higher earning alumni on average. Lastly, Hampton would need to double its endowment or achieve a 100 percent ROI on its current endowment to catch up to Howard – lightning would strike Emancipation Oak twice before the latter would happen. Warren Buffett, considered the greatest investor of all-time, has historically managed around 20 percent annually for the past 45 years. However, given Hampton’s leadership in the form of president William Harvey, who has always kept Hampton fiscally aggressive by limiting the amount it takes from the endowment to 3 percent allowing for greater reinvestment than their peers. It would seem that financial talent and strategy is on Hampton’s side. Hampton is potentially too reliant on its investment strategy and not as much on its alumni development as the school’s giving rate is among the lowest among the big three. Their biggest donation still is from George Eastman, founder of Eastman Kodak, whose $1 million donation in 1924 is valued at approximately $13.8 million adjusted for inflation.

A major factor in all of this and at the heart of it is alumni. An examination of alumni giving rates since 2008 have seen Howard range in the 13-17 percent, Spelman in the 39-41 percent range, and Hampton with 10-16 percent. Percentages can be somewhat misleading giving alumni populations. Howard has by far the largest alumni base of the three schools followed by Hampton and then Spelman. Although the size of the alumni base can be offset by higher giving per alumni, so not too much should be read into these numbers, but it is better to know them than not if you are a development office.

So who do we think we get there first? It is honestly still too early to tell. Given the recent unsettled nature of HBCUs from the private elites to the state institutions to the small liberal arts HBCUs, it seems HBCUs are in a constant proverbial minefield. These three are the head and shoulders favorites, but a transformative donation among any number of HBCUs could change the landscape in a hurry. This could be as they say in the racing world a photo finish.