Tag Archives: hbcu endowments

Howard v. Harvard: Financial Takeaways From The HBCU-Ivy League Game Of The Century (Or So We Hoped)


This game was building in hype from the moment it was announced. The premier academic higher education institutions that represented the best of European American and the best of African America. Schools known best for their academics who also happen to have strong athletic heritages. Harvard University, founded in 1636, calls Boston, Massachusetts home. Arguably, the “capital” of WASP America. Howard University, founded in 1867, calls Washington, D.C. home and up until a decade ago was affectionately known as “Chocolate City” due to the high concentration of African American population. Today, thanks to gentrification it is starting to look a bit more like “Pumpkin Spice Latte City”, but that is another story all together. The game itself ended up resembling unfortunately the economic state of the two groups they represent and how sometimes no matter the size of the heart of the dog in the fight, the size of the dog actually matters. The final score: Harvard 62 v. Howard 17. HBCU Money decided to do a quick take on the financial reality of these two institutions since there is talk that HBCU-Ivy League games could be a “thing” in the future.

ENDOWMENTS:

Harvard has a 231 year head start and one could make the case even longer if we want to count African America’s struggle to hold onto financial assets from coming under attack through a myriad of issues like stolen land, Jim Crow, violence and the like for 100 years AFTER Howard’s founding. However, the situation is as the situation is. According to NACUBO, Harvard’s endowment at the end of fiscal 2018 stood at $38.3 billion, while Howard’s endowment stands at $688.5 million. That gives Harvard about $55 for every $1 that Howard has.

ALUMNI GIVING RATE:

While there are a lot of factor that tie into alumni giving rates, the fact remains it is one of the more even playing fields that HBCUs and PWIs can compete in head to head. Why? A donation of ANY size counts towards the alumni giving rate. From $1 to $100 million, it counts the same in the alumni giving rate. Harvard ranks second in the Ivy League conference with a giving rate of 33.1 percent according to Yale Daily News. Howard, like many HBCUs alumni giving rate fails to even break double digits with a 7 percent giving rate according to the Washington Post. This area may be more problematic in closing the institutional gap more than almost any other. Harvard’s alumni just by their demographic have more wealth than Howard alumni so to have an alumni giving rate that is 500 percent higher just exacerbates the problem. European Americans have over 10 times the wealth that African Americans have, which means that Harvard alumni are likely giving higher dollar amount donations and clearly at a higher percentage. If Howard and HBCUs are going to close the ground, then they are going to have to have a higher giving rate. HBCUs are not getting major donors, but they can get a lot small donors to give a lot to make up the ground.

RESEARCH EXPENDITURES:

Just as scary as the endowments, the research expenditures that both schools touts an immense institutional gap. Although, a grain of sunshine, Howard does lead all HBCUs in research expenditure, while Harvard ranks ninth among PWIs. That being said, Harvard’s annual research expenditure is 24 times the size of Howard’s. Harvard, ranked ninth nationally in research expenditures, has a 2017 RE of $1.1 billion. Howard, ranked 203rd nationally in research expenditures, has a 2017 RE of $45.8 million. Unfortunately, Harvard’s research expenditures have been trending upward the past few years, while Howard’s have been trending downward.

ATHLETIC BUDGETS:

Both institutions compete in the FCS, formerly known as Division 1-AA, but there have been 41 FCS champions since the formation of the playoff in 1978 and only one HBCU has ever participated in the championship game. Florida A&M University won the FCS championship its inaugural season and no HBCU has been back since. The Ivy League on the other hand is one of three FCS conferences that simply opts out of the playoff all together. In the 1950s, the league itself simply considered sports not even a secondary priority some would say. That being said, Harvard’s athletic budget is still 70 percent larger than Howard’s and larger than virtually every HBCU. Harvard’s $17.6 million makes a world of difference on the football field compared to Howard’s $10.1 million. The Ivy League average on athletics is $27.1 million, while the average in the SWAC/MEAC is $9.7 million. This makes future contest not very exciting too look forward too if this is the margin by which our schools will be competing against.

BILLIONAIRES:

A potentially odd category to finish with, but one clearly relevant. Resources matter in higher education and when Harvard’s endowment is almost 20 times the size of all HBCUs combined, then you have to wonder just how the gap can be closed among HBCUs and PWIs. As of 2018, Harvard has 188 alumni who were billionaires. The most of any college in America. Howard University have none. HBCUs all told have two (Oprah Winfrey and Ann Kroenke).

Howard’s largest donation in school history was $6 million in 1987, which adjusted for inflation is $13.5 million. Harvard’s largest donation seems to be a moving target with billionaire after billionaire competing for the top spot. In comparison, Harvard received a $400 million gift in 2015 from one of its 188 billionaire alumni. No HBCU has ever received a donation of $100 million or more.

 

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HBCU Money’s 2018 Top 10 HBCU Endowments


The past 365 days for HBCU endowments has seen a lot of press, mainly led by Bennett College’s #StandWithBennett campaign as the school is embattled and was raising money to retain its accreditation and keep the doors open. A constant reminder of the fragility of HBCUs and their financial uncertainty. Economic conditions in the United States have made overall growth in higher education tempered and with it HBCU endowments have been a mixed bag. While the top ten HBCU endowments have five endowments that beat the median increase in endowment market value, only two endowments beat the national average. In comparison the top ten PWI endowments had eight endowments beat the national median average and seven of the ten exceeding the national average.

Over the past 12 months, the top ten HBCU endowments have increased their market value by $134.5 million or an increase of 7.4 percent over last year. There is plenty of argument that HBCUs should not be compared to the largest PWI endowments in behavior and instead to schools that are comparable in their size and scope. This is certainly a valid argument, but at a time when there are more PWIs with $1 billion plus endowments than there are HBCUs, it maybe hard to continue to lean on such an argument. The reason being is that higher education in general is experiencing and going to continue to consolidation and contraction with education alternatives entering the market. Smaller colleges and HBCUs are going to have to be over capitalized and nimble in order to shift to changing market demands and conditions. At the moment, over 90 percent of HBCUs do not have even $100 million endowments leaving them highly vulnerable as we have seen with the closure of a number of HBCUs in recent years and more than just Bennett in current crisis.

This year we included more than just the top ten, but all HBCUs who reported to NACUBO, which is the reporting endowment organization we use to keep our reporting date uniformed.

All values are in millions ($000)

1. Howard University – $688,562 (6.5%)

2. Spelman College – $389,207 (6.3%)

3.  Hampton University – $285,345 (2.2%)

4.  Meharry Medical College – $159,908 (4.1%)

5.  Morehouse College – $145,139 (2.6%)

6.  North Carolina A&T State University  – $63,827 (14.9%)

7.  University of the Virgin Islands – $61,491 (10.7%)

8.  Tennessee State University – $58,697 (5.1%)

9.  Texas Southern University – $58,158 (7.4%)

10.  Virginia State University – $54,479 (6.6%)

OTHERS REPORTING:

Take a look at how an endowment works. Not only scholarships to reduce the student debt burden but research, recruiting talented faculty & students, faculty salaries, and a host of other things can be paid for through a strong endowment. It ultimately is the lifeblood of a college or university to ensure its success generation after generation.

*Note: The change in market value does NOT represent the rate of return for the institution’s investments. Rather, the change in the market value of an endowment from FY2016 to FY2017 reflects the net impact of: 1) withdrawals to fund institutional operations and capital expenses; 2) the payment of endowment management and investment fees; 3) additions from donor gifts and other contributions; and 4) investment gains or losses.

HBCU Money’s 2017 Top 10 HBCU Endowments


HBCU endowments after a sluggish few years have bounced back with a spring in their step. Half of this year’s list has double digit gains in their endowment’s market value, which is the best showing since 2014. There are certainly some strong arguments of what has led to this turnaround in the past 365 days. One thing for sure is the strong stock market helped all universities and colleges in increased values. There has also been a renewed interest HBCU engagement among the African American community in general with increased admissions and donations across many HBCU institutions. This always bodes well for future endowments given that much of alumni giving is a numbers game. With the economy by many estimates on growing yet shaky ground, future market value growth for HBCU endowments may rest even more so in the pockets of alumni to steady the ship when rough waters approach so that will be something to keep an eye on.

We can only hope that Howard University (despite this year’s absence) is creeping towards the billion dollar endowment mark because the gap between the Top 10 HWCU/PWI endowments and the Top 10 HBCU/PBI endowments seems to only balloon year after year, with the gap increasing from an approximately $140 billion in 2010 to the current almost $200 billion. A gap that for perspective is twice as much as the world’s richest man, Jeff Bezos, entire net worth. As it stands now, there are 100 HWCU/PWIs with a billion dollar endowment or greater and 10 with a market value of $10 billion and greater.

Although they are far from the Top 10, Texas College continues to impress with their endowment’s market value growth, placing 9th out of the 818 colleges and universities that reported to this year’s NACUBO survey with 33.8 percent growth. Whatever is going on in Tyler, Texas, we encourage others to take note.

1. Howard University – Unreported**

2. Spelman College – $366 056 (5.5%)

3.  Hampton University – $279 093 (10.0%)

4.  Meharry Medical College – $153 653 (7.7%)

5. Florida A&M University – $113 000 (-0.1%)

6.  Tennessee State University – $55 840 (11.1%)

7.  University of the Virgin Islands – $55 549 (1.1%)

8.  North Carolina A&T State University  – $55 231 (14.9%)

9.  Texas Southern University – $54 171 (12.5%)

10. Virginia State University – $51 122 (11.6%)

Take a look at how an endowment works. Not only scholarships to reduce the student debt burden but research, recruiting talented faculty & students, faculty salaries, and a host of other things can be paid for through a strong endowment. It ultimately is the lifeblood of a college or university to ensure its success generation after generation.

 

*Note: The change in market value does NOT represent the rate of return for the institution’s investments. Rather, the change in the market value of an endowment from FY2016 to FY2017 reflects the net impact of: 1) withdrawals to fund institutional operations and capital expenses; 2) the payment of endowment management and investment fees; 3) additions from donor gifts and other contributions; and 4) investment gains or losses.

**Howard University did not report their endowment, but has been ranked number one since our list began. As such, we acknowledge the high probability that they remain as such.

Additional Notes:
NACUBO Average Endowment – $704 527 (8.9%)
NACUBO Median Endowment – $130 963 (6.0%)
Top 10 HWCU Endowments combined – $198.4 billion                                        Top 10 HBCU Endowments combined – $1.9 billion

Source: National Association of College & University Business Officers

The 20 Year Review: 1996 & 2016 HBCU Endowments Then & Now


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The 2016 HBCU Money’s Top 10 HBCU Endowments list is out. NACUBO’s list this year included 815 reporting institutions from the U.S. and Canada. Here are a few fast facts of then and now in regards to HBCUs place in the whole of the endowment conversation.

  • Of the 815 reporting institutions in 2016, only 1.8 percent were HBCUs. HBCUs comprise 3 percent of American colleges and universities. In 1996, Of the 467 reporting institutions in 1994, only 0.8 percent were HBCUs.
  • 20 years ago, the 4 HBCUs who were present on the list had a combined endowment value of $468.2 million versus the top 4 HWCUs who had a combined endowment value of $23.8 billion.
  • The endowment wealth gap between the top HWCUs/HBCUs in 2016 was 101:1. In 1996, it was 51:1.
  • In 1996, 20 HWCUs reported endowments over $1 billion and 3 HBCUs reported endowments over $100 million. In 2016, there were 93 HWCUs with reported endowments over $1 billion or an increase of 365 percent. HBCUs increased their ranks of $100 million endowments from 2 to 5 or an increase of 150 percent – unchanged from the 1994 to 2014 review.
  • The 101:1 gap currently is actually a decrease from our 2014 review where the gap was 106:1. A significant 4.7 percent decrease.
  • Of the 805 within the United States, 74.3 percent of the $515 billion in endowment value is controlled by 11.3 percent or 91 institutions.
  • The favorite investment of endowments above $100 million is alternative strategies*, which for endowments above $1 billion make up 58 percent, between $501 million to $1 billion make up 45 percent, and endowments $101 million to $500 million constitute 35 percent of their portfolio.
  • While the majority of HBCUs fall well under the $100 million sphere, the favorite investment among those groups are domestic equities, constituting in the range of 33 to 44 percent of portfolios under $100 million.

*Alternative strategies are categorized in the NCSE as follows: Private equity (LBOs, mezzanine, M&A funds, and international private equity); Marketable alternative strategies (hedge funds, absolute return, market neutral, long/short, 130/30, and event-driven and derivatives); Venture capital; Private equity real-estate (non-campus); Energy and natural resources (oil, gas, timber, commodities and managed futures); and Distressed debt. On-campus real estate is included in the Short-term Securities/Cash/Other category.

The Endowment Edge: A Conversation With Virginia State University’s Mr. Kevin Davenport


HBCU Money’s editor-in-chief, William A. Foster, IV, sits down with the VP of Finance at Virginia State University located in Petersburg, Virginia. Some of the highlights were how HBCUs can close the wealth gap between HBCU and PWI/HWCU endowments, HBCU financial transparency, and more as Mr. Davenport helps lead VSU’s financial health into the second half of the decade with a continued eye on the generations ahead.

headshot-for-kevin-davenport

Mr. Davenport, thank you for taking the time with us. Let us start with telling us a bit about yourself and how you came into your current position? I have worked in higher education finance for over 25 years. I’ve served in a leadership capacity at both public and private institutions and at institutions as large as 35,000 students and as small as 1,000 students. I have a broad finance background which includes hands-on experience with cash management, endowments, investments, budgets, financial statements, audits and financial analysis.

I have served both HBCUs and PWI/HWCUs. I have been Chief Fiscal Officer (CFO) at three HBCUs in Virginia—Virginia Union University, Virginia State University and Saint Paul’s College. I have also served as Treasurer at a PWI/HWCU in Virginia—Virginia Commonwealth University and several of its related foundations (VCU). At VCU, I managed a university working capital pool of about $350 million and oversaw the financing of over $600 million in capital projects. I also serve on the City of Richmond Retirement System Board and Advisory Committee, which oversees approximately $500 million in retirement funds.

I’m a graduate of an HBCU— Hampton University with a Bachelor of Science degree in Accounting. I am also a Certified Public Accountant and have earned an MBA from the College of William and Mary and an Ed.S from George Washington University.

Virginia State University and its foundation combined have one of the largest endowments among HBCUs. For those who are unclear about the dynamic of there being two separate endowments, can you give us a bit more detail of why they are separate? How does their separation impact each investment strategy? The university has a $46 million endowment. About $32 million (or about 70%) of the endowment is managed by the University and the remaining $14 million (or 30%) is managed by a related foundation. Like most public universities, VSU established a foundation to allow greater autonomy in managing assets like endowment funds. After the foundation was established, some donors wanted their contributions to continue to be deposited to the University. Since then, the University continues to give its donors and alumni the option of donating to the university or the foundation.

Each endowment is governed by its own investment policy, spending rate and asset allocation targets. The endowments are managed separately, but their investment philosophy and strategies are similar. Both endowments are well diversified portfolios and conservatively invested to protect against a downturn in the market.

There seems to be concern among HBCU alumni who do not think the endowments of HBCUs are transparent enough and therefore create hesitancy to give. What can be done by HBCUs to allow for their alumni base to feel like there is a clear understanding of how their donations are being invested, allocated, and reinvested? I think HBCUs must ensure the highest level of transparency and accountability to its alumni and donors who establish endowment funds. Alumni and donors should receive a report each year detailing the activity in their individual endowment funds. This report should include total dollars for contributions, earnings, distributions and fees made to and from the endowment.

Most universities charge an internal administrative fee to cover costs for administering the endowment. HBCUs need to ensure these administrative fees are fully disclosed to donors and alumni. Sufficient detail should be provided on how the fees are calculated, how the fees are collected, and what the fees are being used for. Governing bodies need to make sure they review and approve all fees periodically.

It is also a good best practice to have donors and alumni sign an endowment agreement at the time the endowment is established. This agreement should provide donors with a clear understanding of how donations are being invested, allocated and reinvested.

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The endowment gap between PWI/HWCUs and HBCUs has grown from 46:1 in 1993 to 106:1 today. What do you think are some ways that gap can start to be closed, especially with HBCUs facing mounting financial pressure? Is there anything Virginia State University is doing in particular? HBCUs can provide greater emphasis on endowment growth. This is a challenge, especially as many HBCUs face more immediate and pressing needs. But administrators have to fight to make it a priority. VSU is aggressive in reaching out to our alumni and donors about the benefits of endowment giving. Our fundraisers include it in their fundraising literature and make it a priority in soliciting funds from alumni and donors.

HBCUs can also work with their governing boards to establish prudent investment and spending policies. A solid investment strategy can help HBCUs earn more on their endowments, thus grow their endowments to help close the gap.

 Over the summer, a ground swell occurred that has spurred many African Americans to move their banking relationships to African American owned banks and credit unions. Very few HBCUs have banking relationships with African American owned banks, while we know you can not speak for other HBCUs, can you explain Virginia State University’s current relationship with any African American owned banks if any? And what does it say that there is not more husbandry between HBCUs and African American owned banks? VSU does not have any formal relationships with African American owned banks or credit unions. There is a nearby credit union that bears the name “Virginia State University Credit Union”, but the entity has no legal association with the University.

In terms of investment strategy, does Virginia State University primarily internally manage its endowments; use external managers, or a mixture of both? The University engages professional investment advisors and managers to help it oversee its endowment funds. The investment advisors and managers have discretion to invest the funds according to a board-approved investment policy. The investment policy allows the endowment funds to be invested in a diversified investment pool which includes domestic and international equities, fixed income, hedge funds, real estate, and private equity.

The current macro environment in the United States of the zero interest rate policy by the Federal Reserve for the past decade has changed the way many individual and institutional investors set strategy. How do you think it has impacted smaller endowments like HBCUs versus the Big 30 college endowments? Because of the current low interest environment, institutional investors have had to go elsewhere to make money. Institutional investors at the Big 30 college endowments have increased their allocations to non-traditional and riskier asset classes such as private equities, international equities, hedge funds and real estate. Smaller endowments, like at HBCUs, have a harder time accessing these non-traditional asset classes. Further, the Big 30 endowments have been able to hire high-paid Chief Investment Officers (CIO) and specialized investment professionals to help them earn greater returns. Smaller endowments are not able to pay CIOs and their staffs. As such, the smaller endowments continue to lag the investment performance of the Big 30 endowments thus continuing to increase the performance gap.

In following up on that last point, given that 30 colleges & universities control 52% of America’s $500 billion college endowments and 100 times all HBCU endowments combined, what are your thoughts on a policy that would redistribute some of PWI/HWCUs endowments to HBCU coffers or incentivize large donors to give to smaller endowments? I like the idea of incentivizing donors to give more to smaller endowments. Perhaps, donors can receive a greater tax break when donating to smaller endowments like the ones at HBCUs.

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Student loan debt seems to have direct correlations to college endowments, regardless of the school’s cost. We noted in our last report that despite being cheaper, HBCU graduates are finishing with an average of $30,344 in student loan debt versus the top 50 college endowments who finish with $22,020. Coupled with African America’s wealth being sixteen times less than their counterparts this makes student loan debt a compounding issue for wealth building. Is there a more active role HBCUs can take in helping close the wealth gap in the coming decades for African American families? I think the major driver for greater student debt at HBCUs stems from family wealth. According to a recent study done by the State Council of Higher Education in Virginia, the average family income of a student at the public HBCUs in Virginia is about $30,000 per year as compared to an average of about $60,000 per year for the other public universities. In fact, the average family income for some of the largest Virginia universities was over $100,000 per year. Additionally, over 85% of VSU’s undergraduates receive need-based financial assistance which is much larger than PWI/HWCUs. HBCU students struggle to pay the costs so HBCUs must keep their cost of attendance low compared to other PWI/HWCUs. A larger endowment would certainly help HBCUs fill their student’s need and thus reduce their debt burden.

For those interested in one day becoming the head of a university endowment what advice would you give them? If you are interested in heading a university endowment, my advice is to understand that your responsibilities go much further than merely overseeing institutional investments. At a college or university, you would be required to regularly communicate to a broad range of constituents such as donors, alumni, students, faculty, governing boards and administrators.

Thank you for your time; in parting do you have anything you would like to add? No.