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.
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.
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.
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.
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