By: d-mars.com
Institutional Investor
Historically Black Colleges and Universities (HBCUs) in the United States face significant challenges with their endowments, which are notably underfunded compared to other institutions. None have yet reached the $1 billion milestone, although Howard University is making progress towards this goal. While Ivy League universities receive substantial donations from wealthy alumni, HBCUs primarily rely on federal grants for funding.
“Where we are with HBCUs is not for lack of interest, it’s really for lack of resources,” stated Edward Smith-Lewis, UNCF’s Vice President of Strategic Partnerships and Institutional Programs. “That’s a byproduct of a long history of being undervalued, underfunded, and under-supported.”
According to recent research by PGIM and UNCF, HBCUs struggle due to a lack of resources, stemming from a long history of undervaluation and underfunding. The study surveyed endowment professionals from both HBCUs and non-HBCUs, revealing that pooling assets for investment could be a solution for HBCU endowments to grow.
On average, HBCUs have fewer investment professionals on staff compared to non-HBCUs, and they tend to adopt more conservative approaches to risk management due to resource constraints. Limited access to investment managers, especially those delivering high returns, exacerbates the problem, as many HBCUs cannot meet the minimum capital requirements.
To address these challenges, UNCF received a $100 million grant from the Lilly Endowment to establish a pooled endowment for its member institutions. This initiative aims to increase assets for each member by $10 million, leveraging the collective resources to achieve higher returns.
Some HBCUs have already outsourced their endowment management to firms like TIFF and Disciplina. However, there’s a need for customized solutions tailored to the unique risk tolerances and spending rates of HBCUs. OCIO providers should offer more than standard investment portfolios, providing education and expertise to support the growth of HBCU endowments.
Ultimately, collaboration between HBCUs and investment managers is crucial for overcoming endowment challenges and ensuring the financial sustainability of these institutions.
“There needs to be a little bit of grace from the fund managers to understand that these institutions are stuck between a rock and a hard place,” Smith-Lewis said. “I think there’s an opportunity outside of training. They can help with creating solid investment policy statements. It’s not a huge lift, but it would be a gigantic step forward.”
