Now and Forever – Building HBCU Capacity Through Endowment Investment

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Several essays and op-eds I’ve read recently have me thinking about the future of HBCU, even as we face a challenging and uncertain present.  The statistics, and concurrent obstacles to providing excellent educational opportunities to students at HBCU, as well as providing ample support to faculty and staff, are daunting:

Dillard University president Walter Kimbrough points out in “An Obscene Use of $400 Million” in a scathing criticism of John Paulson, who recently donated $400 million to Harvard University.  He argues that Harvard, whose endowment of $36 billion is so large that such gifts are vanities that do not even help the 86% of students who do not receive financial aid to attend, simply does not need such gifts anymore.  

Buried as a lead, however, is Dillard’s rank as the #13 HBCU in the most recent U.S. News and World Report, with an endowment six times smaller than Paulson’s one gift to Harvard (approximately $65 million), .002% of Harvard’s total endowment.  

HBCU Digest editor J.L. Carter notes in his essay “For Philanthropic Future, HBCUs Must Develop Million-Dollar Mentality,” that HBCU “do a great job of hiring graduates for entry-level career jumpstarts and middle management positions,” yet miss out on opportunities to cultivate the next generation of entrepreneurial leaders.  As a result, the availability of donors, both present future, who can and will make transformational gifts to HBCU is a small, and perhaps shrinking, pool.

Finally, Carolyn Ash, Darrick Hamilton, and William Darity note on their Atlanta Journal-Constitution blog entry entitled “As Morehouse and Spelman graduate, consider fate and funding of HBCU,” that the endowment gap between HBCU and predominately white institutions (PWI) have almost doubled in the past two decades. They note how crucial the increased qualifications for Parent PLUS loans and reductions to federal Pell grants have impacted fundraising on HBCU campuses.  It is important to note that when 90% of students are on financial aid and aid sources evaporate, fundraising efforts must focus on retaining these students and assisting their efforts today (and distracting from focus on recruiting students one, five, or twenty years from now).  

It is no secret that endowments—large initial gifts invested so that the interest derived helps underwrite expenses and projects while the initial principal investment remains intact—are the means by which universities can offer more competitive scholarships to an increasingly more capable prospective student body, more stably ride the rising and falling tides of state funding, and recruit and retain the best and brightest faculty.  But when the ominous specter of balancing this year’s budget and helping next year’s graduates inevitably garner the bulk of our attention, how can we afford (literally and figuratively) to focus on endowment building?

Because we absolutely have to.

Present financial challenges faced by private and public HBCU necessitates the immediate filling of budget gaps. This presents an obvious challenge to foundation staffs and administrators to secure major gifts (say $100,000 or more) by priming donors to give gifts in a manner that is short-sighted.  While it is especially challenging for private HBCU to secure endowments outside of large foundation gifts to ensure they can continue to operate and provide scholarships, public HBCU need to grow their endowments in order to support students heavily dependent on financial aid sources which are drying up and becoming more difficult to obtain.  

When otherwise capable students’ ability to matriculate is imperiled, universities and colleges need to be in position to provide support to them.  A more favorable position for institutions is to secure healthy endowment gifts in order to provide more competitive scholarships to students who choose us so that financial disruptions are less likely to derail their progress.  

Major gift prospects are also considered to be in short supply for HBCU. Universities which are short-staffed and administrations with high turnover struggle to cultivate donors over the long term, urging and securing more significant gifts over time to the point that a six- or seven-figure gift becomes a possibility. The lack of formal endowment campaigns or programs at HBCU also miss out on an important opportunity to educate prospects about how gifts serve needs both now and into the future.  

The need to balance budgets and support students struggling to matriculate, along with a lack of cultivated prospects explain the yawning endowment gap between HBCU and PWI.  So how can this challenge be addressed?

1) Introduce an endowment campaign

With a focus on retirees, individuals who are currently engaging in or have previously performed estate planning, and supportive external foundations, HBCU foundations can seek endowment gifts that do not take dollars from general scholarship funds or gifts ordinarily used to close budget gaps.  Introduced as a campaign either in addition to or alongside annual fund or facility enhancement campaigns, this may engage a group of donors not previously identified, or, inspire current donors to think about how they may leave a more impactful gift as a bequest.  It is also a great opportunity to reach out to alumni who work in the finance and insurance industry to identify prospects and train them to encourage clients to leave your institution in their will, or make donations of stock or land that can be used to establish endowments.

2) Encourage hybrid giving

Many donors who have historically given to your institution’s foundation may be willing to allocate donations to both general scholarship funds and endowment needs if simply asked.  If asking a donor to increase a gift by 10% in the upcoming year, ask him/her to consider putting 5% of that increase into an endowment.  If that doesn’t sound like much, consider an annual fund that brings in $500,000 annually. Such a strategy would yield a $25,000 endowment investment, and a recurring $500 each year for perpetuity.  That is a book scholarship for an incoming student that can be given every year.

3) Maximize allocations of incoming gifts

Ensure that incoming gifts are allocated properly and fully maximized. When your institution is left in someone’s will or trust, there is a tendency to plunk those dollars into budget gaps.  But just as that donor wished to support his/her alma mater indefinitely, so should their gifts.  In Louisiana, the state will match every $60,000 set aside for an endowed professorship with $40,000 additional dollars. The interest from these investments can support travel for this professor or graduate assistants to present research, or the hiring of teaching assistants.  

For annual donors considering an endowment, be sure to research matching gift corporations to ensure that the gift is fully maximized.  At a previous employer, I spent some time reviewing all of the annual fund donations from the previous year and discovered that either the donors or their spouses worked for matching gift companies and without asking for $1 more, yielded over $30,000 additional dollars in donations the next year from those corporations.  One such discussion with a donor who gave $5,000 annually and worked for a company with a 2:1 match yielded a $10,000 donation on top of his annual fund gift the next year, which was used to establish an endowed scholarship.

“The future is now” is an overused cliché that couldn’t be more true with regard to HBCU endowments.  It is our responsibility to attain gifts that will undergird the futures of our institutions, even as we are faced with the challenge of keeping the lights on tomorrow.

Dr. William Broussard is the Special Assistant to the President for Institutional Advancement of the Southern University System. Follow him on Twitter at @Jag_Me_Out


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