HBCUs Struggle to Close the Endowment Gap

Historically black colleges and universities (HBCUs) have long faced disadvantages in raising funds and are struggling to grow their endowments even as already rich schools get richer, Bloomberg reports.

According to the Bloomberg analysis, none of the ninety institutions of higher education in the U.S. with endowments of more than $1 billion is an HBCU, and even the wealthiest of the HBCUs, Howard University in Washington, D.C., only ranks a hundred and sixtieth on the list, with an endowment of $578 million — just 2 percent of that of top-ranking Harvard University, which has an endowment of $35.7 billion. The impact of such a discrepancy is profound: the bigger a school's endowment, the more it can spend on attracting highly qualified students, regardless of need, and on providing those students with the academic services they need to succeed.

The Bloomberg analysis also found that about 15 percent of the alumni of both Morehouse College, an HBCU, and Harvard give to their alma maters in a given year, well above the national average of 8.1 percent, while more than a third of the alumnae of Spelman College, an all women's HBCU, and Smith College, the largest of the so-called Seven Sisters, give to their respective schools. Yet Spelman, which has an endowment of $348 million, raised just $2.52 million in alumnae gifts in 2016, while Smith, with an endowment of $1.6 billion, raised $36.3 million.

"Wealth begets wealth," Marybeth Gasman, a professor at the University of Pennsylvania Graduate School of Education, told Bloomberg. "This is the same thing that happens with HBCUs." Although African Americans tend to give a larger share of their discretionary incomes to charity than do white Americans, they also tend to have less accumulated wealth, even at similar levels of educational attainment. In addition, HBCUs historically have been at a disadvantage in receiving large philanthropic gifts from non-alumni. "There's racism involved in acquiring funds," said Gasman. In the past, "funders did not trust African Americans to manage their money, so they didn't give."

Of late, HBCUs such as Hampton University, whose $253.8 million portfolio includes real estate investments and alternative assets, including a stake in a fund run by the private equity firm Carlyle Group, have made their endowments a priority. The investment with Carlyle, for example, came after a board member introduced Hampton president William Harvey to the investment firm's co-founder, David M. Rubenstein. But many such strategies, including those that racked up impressive returns for Yale University under its longtime chief investment officer, David Swensen, are out of reach for most HBCUs, in part because major private equity funds typically require between $5 million and $20 million as a minimum investment, while only half of the sixty-five HBCUs Bloomberg surveyed had more than $20 million in investable funds.

Still, at a time when the Trump administration's support for HBCUs is uncertain, the schools themselves are under growing pressure to strengthen their asset bases. Morehouse, for example, doubled the size of its institutional advancement staff and revamped its endowment portfolio after Moody's downgraded the school's credit rating to junk last year, citing the uncertainty around the school's ability to expand its donor base and improve alumni giving rates. "It's an uphill battle," said John Brown, interim vice president for Morehouse's office of institutional advancement. "But it's not a challenge that Morehouse or the HBCUs with which I'm familiar are willing to concede."