Funding, Grants & Awards

Publics Could Take a Fundraising Lesson from Privates

• By Dian Schaffhauser
• 10/01/15

Public universities aren't optimizing their fundraising and endowment efforts as effectively as they might, even when doing so could help pick up some of the financial slack imposed by reductions in state education appropriations, which have shrunk by 17.5 percent since the recession. In 2014 endowment portfolios accounted for just less than 3 percent of overall revenue at public universities in the United States, compared to 15.5 percent at private institutions.

A new report from Cambridge Associates advises public institutions to consolidate fundraising for efficiency. According to the investment advisory, schools need to shift away from allowing fundraising to be done among smaller programs or "pockets of interest" (for example, the university, its system, its affiliated foundation and various schools and centers within the university) and focus on fundraising toward the school's overall mission.

The company based its analysis on data from more than 190 colleges and universities and supplemented that information with a survey of 22 public universities as well as interviews and a roundtable discussion with trustees of universities, university systems and affiliated foundations.

Endowments at public universities, the report stated, follow one of three structures:

• Multiple endowment portfolios managed by separate entities;
• Multiple portfolios that have been partially pooled in a "unitized" investment portfolio managed by a single entity; or
• A single endowment portfolio managed by a single entity.

Fundraising is handled either through a centralized or decentralized model. "Fundraising that is decentralized to any degree can lead to problems, such as donor fatigue — when an institution's various fundraising arms contact the same donors multiple times — and missed opportunities for coordinated outreach that help align university needs and donors' interests," said Tracy Filosa, co-author of the report, in a statement.

She noted that one university had at least 24 foundations, each representing different campuses, alumni associations and other groups, and each raising funds for its own separate endowment — some as small as $1 million in assets. Following that track means they may miss out on "valuable investment opportunities that may have been available to a larger pool of assets." By creating larger portfolios, institutions gain the scale they need to invest across a wider range of alternative asset classes, often at lower fees.

"The most sophisticated investment portfolios have a long-term horizon, and align with long-term institutional missions and needs," said Filosa.

The research project found that "the most successful university fundraising operations provide clear opportunities for donors to connect to their universities and support larger institutional priorities." That requires schools to proactively to "point donors toward the areas where support will fulfill the greatest needs and even show them how their donations will fit into a comprehensive plan."

The report emphasized that the endowment portfolio will "increasingly be asked to contribute a higher proportion of operating revenues and balance sheet health." Those that can weather that challenge will end up cultivating "new revenue, a strong culture of philanthropy, and effective governance and investment management that lead to endowment growth."

The Cambridge Associates report, "Fundraising and Endowment Oversight for Public Universities," is available here.