HBCUs seeking broad range of managers to help them boost assets
As institutions and investment consultants increasingly look for opportunities to pinpoint and work with diverse asset managers, a segment of investors overseeing endowments for historically black colleges and universities also is in the market, either as a matter of formal policy or informally, setting diverse manager searches and hires as a priority for staff.
Officials at HBCUs are simultaneously ramping up their capital-raising efforts to grow their endowments, sources said.
Keon Holmes, a managing director at investment consultant Cambridge Associates LLC, Boston, has found that "a number of (HBCUs) are making growth of their endowments a priority and are investing in their development offices in order to raise dollars within and outside their alumni networks," he said an email.
These institutions also have shown an interest in working with minority-owned asset managers, Mr. Holmes noted.
"A subset of HBCUs have incorporated language into their investment policy statements indicating a desire to unearth and hire minority managers. Other institutions may not have formalized this as a written policy but have stated this as an implementation priority," he continued, adding this increased interest in diverse managers has surfaced across Cambridge's larger client base.
Among 101 HBCUs in the U.S. Department of Education's Integrated Postsecondary Education Data System, 48 schools submitted data on their endowment assets, which, combined, totaled $2.7 billion as of the end of fiscal year 2017. The largest endowment on the list belonged to Howard University, Washington, which at the time had $647 million (the endowment was $688 million as of June 30).
According to recent government data, HBCU endowments are a little more than half the size of median endowments at similar schools that are non-HBCUs.
After matching accredited HBCUs with non-HBCUs across key areas that include sector type (public, private, two- or four-year institutions), highest degree offered, enrollment size and location, the U.S. Government Accountability Office found the median endowment at HBCUs was $12 million, while the median endowment size at non-HBCUs was $23 million, according to a June report. GAO analyzed Department of Education data on the endowments of 83 HBCUs and 286 non-HBCUs to find the median endowment sizes.
The report, which examined HBCU's capital project needs and funding sources, ultimately recommended the Department of Education increase outreach to institutions to inform them of its HBCU Capital Financing Program, which was created in 1992 and provides grants that can be used for a number of purposes, including endowment-building, financial management, academic resources and physical infrastructure.
"Officials we spoke with noted that HBCUs do have smaller endowments, so many have challenges accessing financing," said Boston-based Melissa Emrey-Arras, a key contributor to the report and director of education issues on GAO's education, workforce and income security team, in a phone interview.
"What you see from (the report) is that HBCUs had about half of the total endowment (assets) of matched non-HBCUs," she continued.
At Morehouse College, Atlanta, where the school's endowment well exceeds the median $12 million figure for HBCU endowments cited in the GAO report, one of the first goals set by new President David A. Thomas was to increase the school's endowment.
When Mr. Thomas took office in January 2018, the endowment was approximately $140 million, but he aims to grow the endowment to $400 million under a capital campaign, which is still being developed,a spokeswoman wrote in an email.
The endowment at Morehouse, a historically black, private liberal arts college for men founded in 1867, stood at $145 million as of June 30, the spokeswoman confirmed. Mr. Thomas also set a goal to double Morehouse's alumni giving rate to 34%, a goal the school's office of institutional advancement is working toward.
In the fall, Mr. Thomas hired Monique Dozier as vice president of the office of institutional advancement "to revamp fundraising strategies at Morehouse, increase overall giving and lay the foundation for a capital campaign," the spokeswoman wrote. Ms. Dozier was previously an assistant vice president for advancement information systems and donor strategy at Michigan State University.
The school's capital campaign would seek to raise money for student scholarships and other college needs, including endowment growth, the spokeswoman confirmed in a follow-up call.
For the endowment, net annualized returns for the trailing one-, three- and five-year periods as of June 30 were respectively 2.6%, 6.4% and 13.3%, according the spokeswoman.
Last month, Vista Equity Partners Management LLC Founder and CEO Robert Smith made a $1.5 million gift to fund endowed scholarships and the design and creation of a park that will serve as an outdoor study area for students, a news release from Morehouse said.
Minority-owned Vista Equity Partners is an Austin, Texas-based private equity and venture capital firm.
At Spelman College, a private liberal arts women's college in Atlanta, the endowment has reached nearly $390 million, "over several decades," President Mary Schmidt Campbell said in a phone interview.
Cambridge Associates serves as the endowment's investment consultant, but Spelman also has an in-house endowment team headed by Robert "Danny" Flanigan Jr., who is the chief financial officer, vice president for business and financial affairs, and treasurer for Spelman College, Ms. Campbell said.
"(The endowment is) run by Danny. It is a collaborative conversation about where Spelman should put its money," she added.
In a follow-up email, Mr. Flanigan provided information on Spelman's asset allocation: 37.4% private equity/venture capital/distressed investments, 23.2% marketable alternatives, 13.7% global non-U.S. equities, 10.5% U.S. equities, 6.6% fixed income, 5.1% real assets and 3.5% cash.
While Spelman is "always in constant search of new investment managers," it currently has a roster of 51 external investment managers.
Nearly 18% of the Spelman endowment's net asset value was invested with diverse managers as of June 30. Mr. Flanigan added, however, that "Spelman hires managers based on performance — not because they are minorities."
The Spelman endowment's one-year net returns were 11.68% as of June 30, while its annualized three-year and 20-year returns were 7.55% and 8.75%, respectively, according to data provided by a spokeswoman.
Howard University has approximately 50 money managers on its roster. Of note, its investment office seeks to identify minority-owned money managers "with the pedigree and capabilities to meet (its investment goals) in alignment with fund objectives," a university spokeswoman wrote in an email.
"Howard believes that minority managers can add value to the program and will continue to seek such managers in the investment process," the spokeswoman said.
As of Dec. 31, minority firms managed 10% of Howard's endowment assets, the university later confirmed.
Howard's endowment separately has increased its real estate target allocation over the past few years to 10% from 5%, while private credit was added as a new asset class (up to 9%). The university remains interested in these asset classes as well as real assets and infrastructure funds, the spokeswoman added. In May 2016, Frank Bello was appointed chief investment officer of the Howard endowment fund, which was previously overseen by Patricia Gerrick, who worked in a "contractor CIO" role, and not as an employee of Howard, according to the spokeswoman. Prior to taking on his role, Mr. Bello was treasurer and trustee of the Chicago Transit Authority.
Additionally, Howard in February 2018 hired a director of investments, Brian Swain, to assist Mr. Bello in managing the portfolio, according to the spokeswoman.
The Howard endowment's net returns over the one-, three- and five-year periods were 8.8%, 6.3%, 7.1%, respectively, according to data provided by Mr. Bello.