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Will a rebounding economy affect HBCUs' endowments?

The stock market's impressive performance in recent months has helped college endowments regain much of their growth that was lost since the economy began its nosedive in 2008, according to preliminary results from the most comprehensive study of higher education endowments.

The preliminary study, "Commonfund Study of Endowments," released by the National Association of College and University Business Officers in November, reveals that educational endowments earned investment returns on average of 11.7 percent in fiscal year 2013, compared to 0.03 percent in 2012. The study is based on responses from 206 endowments and foundations that responded to detailed surveys from the Commonfund Institute. The research group says more than 200 other institutions have indicated they will file reports with the organization by January 2014, when it plans to issue the final version of its study.

The preliminary results, which measure endowment performance by financial size groups, do not identify institutions by name. But in the 2012 survey issued last spring, the endowment statuses of several historically Black colleges and universities were listed. Despite this, institute officials note that most HBCUs do not participate in the Commonfund Institute survey.

Of the handful that did this year, which were mostly larger HBCUs with long-established endowments, the survey results confirm anecdotal evidence of a rebound in the making, notes William Jarvis, managing director and head of research at the Commonfund Institute.

Howard University, for example, saw the value of its endowment for fiscal year 2013 rise to $516 million, compared to $460 million for fiscal year 2012. During the nation's economic recession, the value of Howard's endowment followed the stock market and hit a low of $380 million in 2008.

"Howard's endowment has exceeded pre-recession levels" says Howard University Interim President Wayne A.I. Frederick.

Hampton University reported its endowment had risen to an all time high of $265 million, 11.6 percent ahead of the same time a year ago. The institution's endowment had nosedived to $195 million during the recession.

"Endowments give you a lot of flexibility to do a lot of things" says Dr. William Harvey, president of Hampton University, touting the good endowment news. He notes his institution follows the general national practice of using only 3 to 5 percent of annual earnings a year and reinvesting the rest into its endowment.

With the additional income expected from stronger investments, Harvey says Hampton plans to invest much of the new money into "scholarships for high achievers." The gains help Hampton to increasingly diversify its income stream, says Harvey, who adds, "I don't like to be dependent on any one sector" of the economy for university resources.

If one extrapolates, it would be safe to speculate that other HBCUs with well-established endowments, such as Spelman College, Meharry Medical College and Tuskegee University, also experienced impressive rebounds in their endowments.

In the 2012 survey, Spelman reported an endowment of $309 million and Meharry, $112 million. Tuskegee, which did not participate in the annual survey, reported its fiscal year endowment stood at $105 million.

This good news from the investment front does have caveats.

For instance, institutions that lost considerable endowment value in recent years need to remain conservative in tapping the increased value of their savings, says Jarvis. He says endowments are still intended to strengthen an institution over the long term and notes that donors who give large amounts to institutions are still looking at how well schools are run.

"These days a donor will look at the financial capabilities [of an institution] to determine whether to give an annual gift," says Jarvis. "A well-run office gets an endowed gift. Demonstrate the competence, you get the money."

Though the study's preliminary results show that institutions' endowments are bouncing back, Jarvis emphasizes that people need to understand that the rebound still has a long way to go.
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Title Annotation:noteworthy news; historically black colleges and universities
Author:Stuart, Reginald
Publication:Diverse Issues in Higher Education
Geographic Code:1USA
Date:Dec 5, 2013
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