A recent joint study by UNCF (United Negro College Fund) and PGIM, the global asset management business of Prudential Financial, sheds light on the challenges faced by private Historically Black Colleges and Universities (HBCUs) in accumulating substantial endowments and proposes ways the asset management industry can help optimize their investment returns for long-term growth.
“HBCUs have, for centuries, pursued their missions without the endowment resources afforded to their counterparts. They have done tremendous work with a hand tied behind their back,” Ed Smith-Lewis, vice president for strategic partnerships and institutional programs at UNCF, said in a press release.
Titled “Investing in Change: A Call to Action for Strengthening Private HBCU Endowments,” the study surveyed endowment professionals from almost a third of all private HBCUs. It revealed that these institutions have fewer resources compared to non-HBCUs when it comes to overseeing their endowment portfolios. This limitation affects their ability to use endowments effectively, manage risks, and make asset allocation decisions.
The study identified four main constraints for HBCU endowment professionals: smaller endowments, limited investment management resources, risk aversion, and smaller alternatives allocations. Private HBCUs face limitations in infrastructure and capabilities due to smaller endowments, with 86% primarily using them for scholarships, leaving little budget for other essential needs. On average, private HBCUs have only one internal investment management professional, compared to an average of six at non-HBCUs. These institutions also tend to be more risk-averse, with only 13% allocating specific resources to risk management activities, compared to 54% in non-HBCUs. Private HBCUs hold about 27% less of their portfolio in alternative asset classes compared to non-HBCUs, suggesting a need for more sophisticated liquidity management tools and processes.
The study proposes that the asset management industry can assist HBCUs by providing investor education, innovative investments, diversification solutions, risk management expertise, portfolio management oversight, and supporting endowment pooling initiatives. The goal is to help these institutions overcome financial constraints and enhance their investment outcomes for long-term sustainability and growth.
“Our hope is that this research initiates critical conversations about how to level the playing field for HBCU endowments and how asset managers can engage with these vital institutions to help them meet their long-term goals,” Sancia Dalley, managing director and head of PGIM’s DEI Portfolio and HBCU Investment Strategy, said in the release.
