CT university endowments riding post-recession growth wave as tuition continues to rise

Anyone grading the performance of Connecticut college and university endowments in recent years would probably give them an A+.

Over the last decade, more than half of Connecticut’s 20 four-year nonprofit higher-education institutions at least doubled their endowment funds, with some schools’ nest eggs tripling or even quadrupling in value, according to a Hartford Business Journal analysis of college financial data.

Collectively, those schools’ endowment assets increased by 86 percent from 2009 through 2018, a strong rebound from the Great Recession when four-year universities across the country saw their endowment values drop by more than 20 percent over a two-year period.

“Over the past decade in general, the financial markets have done very well,” said Ken Redd, research director at the National Association of College and University Business Officers (NACUBO), which annually conducts an expansive survey of U.S. university endowments.

The steady and significant increase in Connecticut schools’ endowments, fueled by stepped-up private fundraising and a strong post-recession stock market, gives colleges some additional financial security and allows them to provide more student aid, as well as funding for operations, faculty and academic programs, school officials say.

Sizable or increasing endowments also give colleges bragging rights, raising their profile in the eyes of students, parents and even higher-education rankings.

However, even at their record levels, endowments are far from a magic bullet to the ever rising cost of higher education.

Amid the post-recession endowment surge, the cost of a four-year degree in the U.S. and Connecticut has continued to climb several percentage points per year, according to The College Board. Over the last decade, national student loan debt has more than doubled, to $1.61 trillion, according to the Federal Reserve.

That, combined with the fact that public universities are subsidized by tax dollars, has led some state and federal policymakers to ask: Why should students and taxpayers foot ever increasing higher-ed costs when schools are sitting on endowments worth hundreds of millions or even billions of dollars?

“It’s becoming a bigger and bigger political issue,” Martin Van Der Werf, associate director of editorial and postsecondary policy at the Georgetown Center on Education and the Workforce, said of rising endowments. “There are a number of universities that literally have a larger endowment than they can possibly spend, … but on the other hand, I would say that this is really not that many of the colleges.”

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CT asset growth

College and university endowments nationally have grown about 102 percent over the last decade. More than half of Connecticut colleges outpaced that growth.

Among four-year schools in Connecticut, East Hartford’s Goodwin College — a relatively young school that began offering bachelor’s degrees in 2008 — saw the biggest percentage increase in its endowment assets from 2009 to 2018, growing from $824,551 to nearly $11 million, according to data from the National Center for Education Statistics (NCES).

Meanwhile, 11 other Connecticut schools more than doubled the value of their endowments over that time, including the University of New Haven (to $72 million), University of Bridgeport ($34 million), Quinnipiac University ($526.6 million), University of St. Joseph ($33.5 million), University of Hartford ($178.8 million) and Central Connecticut State University ($72.7 million).

Connecticut’s wealthiest schools also saw impressive growth. Yale University, which sits on a $29.44 billion endowment, saw its nest egg increase 83 percent over the 10-year period, while Wesleyan University’s endowment for the first time broke the $1-billion mark in fiscal 2018; its endowment grew 124 percent over the last decade.

Since 2009, UConn’s endowment has grown by 72 percent to $423.2 million, according to NCES figures.

College endowments have seen a prosperous decade for several reasons.

The U.S.’ two major stock indexes — S&P 500 and Nasdaq Composite — have nearly tripled and quadrupled in value, respectively, over the last decade buoying myriad investors, including colleges.

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Christopher Galligan, Vice President for Institutional Advancement, Central Connecticut State University

Schools have also put a greater focus on fundraising.

About a decade ago, Central Connecticut State University hired five development officers and tasked them with increasing the university’s donor base and growing the endowment, said CCSU Vice President for Institutional Advancement Christopher Galligan. Back then, CCSU’s endowment was about $18 million, he said.

With that concerted effort and the support of CCSU President Zulma Toro in pumping up fundraising, Galligan said, the endowment has grown to about $73 million.

“The primary goal was to … do a better job of engaging and connecting alumni to the university,” Galligan said.

Shawn Harrington, chief financial officer at the University of St. Joseph, said his school has also ramped up alumni and foundation fundraising in recent years. The college recently wrapped a multi-year campaign that netted more than $30 million.

“There’s been a continuing focus on how to grow that activity and go after those gifts,” Harrington said.

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Shawn Harrington, Chief Financial Officer, University of St. Joseph

With state budget constraints squeezing public college support, asking for donations has become an increasingly competitive game.

“Public universities are getting less support, so they are chasing additional money themselves,” he said.

Jerry Ganz, chief financial officer for the UConn Foundation, which manages the University of Connecticut’s endowment, said the school in recent years has focused on professionalizing its fundraising apparatus, soliciting a larger number of smaller donations from alumni by hosting events and concentrating on building the alumni network.

“The growth of the endowment during the last 10 years has resulted from a combination of additional gift revenue and positive investment return, the latter of which has been generated during a long period of growth in the markets,” Ganz said.

The UConn Foundation, like other college endowments, has also increased its holdings in alternative investment vehicles such as hedge funds, which can be riskier than traditional stocks and bonds, but can yield larger returns, said UConn Foundation President Scott Roberts.

That fits with a broader trend for public universities, which across the country have increased bets on alternative investments, from 41 percent of their overall portfolios in 2009 to 46 percent in 2018, according to the National Association of College and University Business Officers.

However, those schools still haven’t caught up with their private college counterparts, which last year had 56 percent of their endowment portfolios in private equity, hedge funds and venture capital.

Nurturing a nest egg

While some have criticized schools (particularly the wealthiest ones) for sitting on large and growing endowments while the cost of college continues to climb, administrators say the way endowments work is nuanced and sometimes misunderstood.

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Officials say bigger endowments have allowed for increases in student aid, helping blunt what would have otherwise been even bigger cost hikes for students.

Not-for-profit institutions are also restricted by law, university policy, and often donor wishes when it comes to how they can spend endowment funds.

It ranges from school to school, but the main way universities spend their endowment distributions annually is on student aid, according to NACUBO, which found that nationally, colleges allocated nearly half of their endowment allotments in 2018 for financial aid.

That was followed by support for academic programs (16 percent), faculty positions (10 percent) and campus operations (7 percent).

Roberts, the UConn Foundation president, said it’s vital for future fundraising that donors can trust schools to use their charitable gifts as intended.

“We are stewards of funds that generous donors have invested in the future of our university,” Roberts said.

USJ’s Harrington said the overarching strategy for managing an endowment boils down to protecting the longevity of the institution.

That’s why university policies on spending endowment money appear so conservative — most schools tap just 5 percent or less of their investment returns in a given year.

“We’re leaving something to build in the future,” Harrington said. “The tendency to want to raid the kitty to spend the seedcorn is something I think most boards [of directors] will react to negatively.”

Spending a larger percentage of endowment returns — whether on more student aid or a new faculty position — is seen as generally unwise, and may even violate a state law requiring endowment overseers to act as prudent investors.

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Mark Varholak, Chief Financial Officer, Quinnipiac University

“Markets can be volatile and an institution that is dependent upon an annual distribution of 10 percent to 20 percent would likely see their endowment fund evaporate over time,” said Mark Varholak, CFO at Quinnipiac University.

Not to mention the ever-present threats of the next recession taking a big bite out of college nest eggs and projections of declining enrollment at regional universities in the Northeast through the next decade.

“With the chance of recession on top of demographics, resources from endowments may be limited,” said NACUBO’s Redd.

Many college financial officers deem it prudent strategy to ensure endowments are at least large enough to pay for one year of college operations, said Sandy Baum, a senior fellow in the Income and Benefits Policy Center at the Urban Institute. That benchmark gives institutions more flexibility to weather enrollment dips or rising costs.

“If you think about [endowments] like a household, you would like to have money so that in a time where you’re unemployed and your revenue is slowed down that you’d have money to pay for things,” Baum said. “So institutions want to know that if enrollment drops a little bit, or there’s some sort of cost increase, they’ll have money to weather that.”

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