Historically Black Colleges Try to Catch Up as Rich Schools Get Richer

Morehouse College has strong academics, an idyllic leafy campus, and illustrious alumni, 15 percent of whom give back to the school, a rate comparable to Harvard’s. But the historically black college in Atlanta lacks one thing that’s increasingly important: a rich endowment fund.

At just over $130 million, the all-male college’s fund ranks about 400th among U.S. schools. It’s not an unusual problem for historically black colleges and universities, also known as HBCUs. None of the 90 higher education institutions with endowments of more than $1 billion is an HBCU. The wealthiest is Washington’s Howard University, with $578 million as of June 30, 2016, ranking about 160. That’s less than 2 percent the size of the fund at Harvard, the richest school overall, with $35.7 billion.

Independent wealth is especially important at a time when Donald Trump and his administration have given mixed messages on federal funding. Upon coming into office, Trump said he would “absolutely prioritize” funding for the institutions. When submitting a budget proposal, however, Trump implied in a signing statement that federal funding to HBCUs might be unconstitutional. A second statement backtracked the comment, and the administration’s proposed funding for the schools is unchanged from last year’s budget under President Obama, at about $492 million.

Graves Hall at Morehouse College.

HBCUs were created for the most part after the Civil War to educate students who were barred from white institutions. In the 1960s, about 90 percent of black college students attended HBCUs, both public and private, but today the schools enroll just 21 percent of black undergraduates. “We began to compete openly for students, talent, and resources,” says John Brown, interim vice president for Morehouse’s office of institutional advancement, which raises money for the school. “As that competition opened up on all fronts, we have found ourselves in the position of playing catch-up, plain and simple, and that’s where we are.”

The wealthier a school’s endowment, the more money it has both to attract students and to provide them with the funding and academic services to get them to graduation. Howard’s endowment means it has just under $58,000 for each of its 10,000 students. By comparison, Nashville’s Vanderbilt University has about $300,000 per student.

The problem isn’t alumni who fail to give. Across the street from Morehouse at Spelman College, the historically black women’s college with a graduation rate of more than 75 percent and a $348 million endowment, more than a third of alumnae donated to the institution in 2016. That’s more than four times the national average of 8.1 percent, according to data compiled by the Council for Aid to Education, a group that tracks philanthropy to universities. Spelman collected $2.52 million in alumnae gifts in 2016. Smith College, the women’s college in Northampton, Mass., had about the same proportion of alumnae donating. But that school, with a $1.6 billion endowment, received $36.3 million from former students in 2016.
Generally, black Americans tend to give a larger share of their discretionary income to charity than whites do. But “wealth begets wealth,” says Marybeth Gasman, a professor at the University of Pennsylvania’s school of education who researches endowments. “This is the same thing that happens with HBCUs.” African Americans tend to have less built-up wealth than whites, even at similar levels of education. Besides alumni, schools can get donations from philanthropists, and there’s a history of HBCUs being at a disadvantage there as well. “There’s racism involved in acquiring funds,” says Gasman. In the past, “funders did not trust African Americans to manage their money, so they didn’t give.” That’s left the schools with a bigger gap to close.

At Hampton University, a 4,600-student school in southeast Virginia, longtime President William Harvey says he made increasing the endowment a major priority. “I run Hampton like a business with an education objective, but there aren’t a lot of educators, especially in the world of HBCUs, that think like that,” he says. His school’s $253.8 million portfolio includes real estate investments and so-called alternative assets such as a stake in a fund run by private equity giant Carlyle Group. The investment came after a Hampton board member introduced Harvey to Carlyle co-founder David Rubenstein.

But Harvey’s ability to tap leading investment managers isn’t typical among HBCUs. At Rust College in Holly Springs, Miss., Don Manning-Miller, the school’s vice president for finance, discovered that its $36 million in endowment assets just wasn’t enough to mimic the approach he admired at schools such as Yale University, which has racked up impressive returns with investments including venture capital funds, hedge funds, and private equity. “We did a study to figure out what they were doing by way of asset allocation, but we found that part of the problem was that a lot of these funds require a level of endowment before they’ll even consider you an investor,” says Manning-Miller.

A major private equity fund such as Carlyle typically requires $5 million to $20 million as a minimum investment. Only half of the 65 HBCUs that Bloomberg surveyed had more than $20 million in endowment assets. Currently, Rust College has 10 percent of its endowment dedicated to private equity, but it’s considering raising that to 15 percent in hopes of boosting returns.

Smaller asset bases also force some schools to avoid potentially lucrative strategies that may be illiquid or risky. “When you only have $100 in your bank account you’re more likely to be conservative because you can’t afford to lose it,” says Gasman.

Morehouse recently doubled the staffing of its office of institutional advancement and revamped its endowment portfolio under the leadership of a new investment manager. It’s under pressure: Moody’s Corp. downgraded Morehouse’s credit rating to junk in August, citing the uncertainty of expanding the school’s donor base and giving rates. “It’s an uphill battle,” says Brown. “But it’s not a challenge that Morehouse or the HBCUs with which I’m familiar are willing to concede.”

BOTTOM LINE – With relatively small asset bases, some HBCUs cant gain access to the kinds of investment strategies available to schools with multibillion-dollar endowments.

Read more: http://www.bloomberg.com/news/articles/2017-07-18/historically-black-colleges-try-to-catch-up-as-rich-schools-get-richer

Advertisements

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s