According to data from National Association of College and University Business Officers and TIAA-CREF, as of June 30, 2022, the largest HBCU endowment was $863 million at Howard University, Washington; followed by Spelman College, Atlanta, with $459 million. In contrast, Harvard University, Cambridge, Mass. had the largest endowment at $49.4 billion.
The survey by PGIM and UNCF of 22 private HBCU endowment professionals, representing about one-third of all private HBCUs, revealed some of the issues tied to HBCU endowments.
Due to their relatively modest size, some HBCUs cannot afford to use the income earned from the endowments to invest in such crucial areas as infrastructure development, faculty/student research and/or staff salaries, as well as fellowships. Indeed, some 86% of the private HBCUs in the PGIM-UNCF survey said they were restricted by resources to mostly supporting scholarships, with little left over to fund other essential needs.
The survey also revealed that private HBCUs typically have only one internal investment management professional to steward their endowments. "They also have minimal external support, typically collaborating with just one asset manager and one institutional investment consultant," the survey noted. In contrast, on average, non-HBCUs boast six internal investment staff members and a "host of external asset manager support," the survey said.
Moreover, less than half of the private HBCU investment professionals who were surveyed, said they have sufficient time to spend on asset allocation decisions, compared with 86% of peers at non-HBCUs. Some 55% of HBCU respondents said that "greater knowledge of innovative investments could positively impact their institutions" and acknowledged "the need for better portfolio diversification."
The survey also found that HBCUs are far more fiscally conservative than non-HBCUs.
While both HBCUs and non-HBCUs have become less risk-averse with their investments over the past four years, the survey noted, the move up the risk spectrum for private HBCUs has been marginal, while non-HBCUs have been "more aggressive with higher risk" with potentially higher-reward investment allocations. Currently, 63% of HBCU respondents classify their risk tolerance as "moderate," with the remainder hewing to a more conservative approach.
Finally, HBCUs tend to have smaller allocations to alternative asset classes compared with non-HBCUs. On average, private HBCUs have about 14% exposure to alternatives, compared with 41% for non-HBCUs. This large discrepancy suggests that HBCUs "may benefit from access to best-in-class liquidity management tools and processes, as well as a higher risk tolerance, to optimize their long-term returns," the survey said.
The survey also said HBCUs might find better opportunities for their endowments in alternative investments, such as private equity, private credit and real estate.
The survey concluded that the asset management industry can help HBCUs navigate these challenges by, among other things, offering investor education and access to innovative investments and diversification solutions; sharing risk management expertise; and providing portfolio management oversight.
PGIM, the global asset management business of Prudential Financial, has about $1.2 trillion in assets under management.
The survey was conducted in the third quarter.