HBCUs Seek Opportunities to Bolster Endowments, per PGIM Report

A study by PGIM and the United Negro College Fund suggested that historically Black institutions could pool endowments to access more investment opportunities.

Historically Black colleges and universities have far fewer resources to manage their endowments than other universities and have issues accumulating endowment assets, according to a joint study by PGIM and the nonprofit United Negro College Fund Inc. released on Monday.

For the report, “Investing in Change: A Call to Action for Strengthening Private HBCU Endowments,” UNCF and PGIM surveyed 22 private HBCU and 50 non-HBCU endowment professionals in a survey conducted in partnership with research firm CoreData.

The research found that HBCUs tend to have smaller endowments than their peers, resulting in financial constraints. According to the report, 86% of these endowments allocated most of their assets to scholarships, with little available for any other purpose, including investment.

“One of the biggest challenges we face is growing our endowment,” said one HBCU president cited in the report. “When you are an institution that depends annually on revenue from enrollment, all it takes is one blip, and all of a sudden, you’re facing a financial challenge.”

No HBCU has an endowment greater than $1 billion, according to the report. The largest, managed by Howard University, had $865.3 million in assets as of April 2023. According to the report, the median endowment of the institutions surveyed stood at $31 million, while the institutions surveyed represented a range of $5 million to $500 million as of year-end 2022.

“With a $30 million endowment, we don’t have the luxury of dipping in one year and taking $3 million out of the endowment to supplement our operations,” said one chief financial officer quoted in the report.

The research also noted that HBCUs, on average, have very small investment staffs. These institutions averaged only one internal investment professional, while other colleges and universities have an average of six, and one external investment professional, while non-HBCUs have an average of five. Both HBCUs and non-HBCUs average one investment consultant.

Of HBCU investment professionals surveyed, fewer than half reported spending time on asset allocation, compared to 86% of their peers at non-HBCUs. With limited resources and staff, some investment professionals at HBCUs report leaning on their schools’ boards to assist with investment decisions, while some note that board members often provide expertise in risk and asset management.

“HBCUs have, for centuries, pursued their missions without the endowment resources afforded to their counterparts. They have done tremendous work with a hand tied behind their back,” said Ed Smith-Lewis, vice president for strategic partnerships and institutional programs at the UNCF, in a statement. “Using this study as a foundation, UNCF is leading the charge to forge a new era in which HBCUs are able to cultivate the endowments required to accelerate their work and impact.”

Potential Solutions Include Endowment Pooling

As part of the report, PGIM and UNCF proposed solutions involving asset management industry cooperation with HBCUs to better support and provide service to their endowments.

The report stated that providing investment “education and access to innovative investments and diversification solutions” to HBCU endowments could enhance investment outcomes.

The report also suggested endowment pooling, in which the endowments of several institutions pool assets to gain access to investment opportunities only available to investors with greater assets. According to the report, 19% of HBCUs already pool assets, and an additional 44% reporting they would be likely to consider asset pooling.

The UNCF announced in mid-January a $1 billion capital campaign that includes a goal of $370 million earmarked for the endowments of its 37 member institutions. An initial $100 million grant from Lilly Endowment Inc. will be deployed to initiate a pooled endowment fund.

“We plan to establish endowments for our member HBCUs that will be pooled and managed at UNCF. They will become permanent assets of the institutions,” said Michael Lomax, the president and CEO of the UNCF, in a statement announcing the grant. “Rising tides do lift all boats, and UNCF is committed to making this a reality, because 100% of this grant will be used to enhance the endowments at our 37 members colleges and universities.”

Additional solutions included in the report were additional risk management support to help HBCUs “navigate macroeconomic challenges, including interest rate and inflation risks;” collaborating with experienced partners to increase risk tolerance; and “implementing sophisticated liquidity management tools.”

“Our hope is that this research initiates critical conversations about how to level the playing field for HBCU endowments and how asset managers can engage with these vital institutions to help them meet their long-term goals,” said Sancia Dalley, a managing director and head of PGIM’s DEI portfolio and HBCU investment strategy, in a statement. “PGIM’s work with HBCUs and UNCF is one way we can help fuel an ecosystem that is already producing a strong talent pool of future professionals for our industry.”