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University endowments: Spend now or pay for the future?


Shelagh Gastrow provides advisory services to the philanthropy sector, higher education advancement and non-profit sustainability. She works with individuals and families on how to integrate their wealth and their values into meaningful and effective philanthropy. From 2002-2015 she was founder and executive director of Inyathelo and focused her efforts on strengthening civil society and universities through programmes to develop their financial sustainability whilst promoting philanthropy in SA. Her work has gained public recognition locally and internationally.

The role of university donors has been raised in the last few weeks, with university endowments, which are largely donor-based investments, being criticised for being dead money. But endowments enable universities to plan for the longer term, to start new initiatives without waiting for government funding, to invest in buildings and to strengthen the whole academic endeavour by providing the most up-to-date technology.

At a 2014 conference, University of Johannesburg vice-chancellor Ihron Rensburg prophesied: “Tectonic shifts are under way in the South African university system. At least 50% of those leaving with qualifications are first-generation graduates and 60% of those entering are first generation students. Our current and future student population is typically black, working class, agrarian or peri-urban (squatter and slum settlements), first generation and poor. If ever there was a force for social justice and fundamental transformation, this is it.” He went on to point out that the student demographic was running ahead of the academic demographic and noted that the new population of university entrants had far more diverse needs on an entirely different scale. These needs related to orientation, academic development, tutoring, nutrition and the provision of residences.

The role of university donors has also been raised in the last few weeks, with university endowments, which are largely donor-based investments, being criticised for being dead money, as well as misguided views that donors to the University of the Witwatersrand (Wits), for example, are largely Jewish and control the university. These kind of conspiracy theories do no credit to the universities and the people who create them.

According to the 2014 findings of the Annual Survey of Philanthropic Income in Higher Education, which focused on donor funding in 10 South African universities, the universities raised R659-million in 2013. International donors contributed 47% of those funds, although they only account for 13% of the donor pool. The funding was uneven and two universities received 55% of the total amount from 74% of the donors.

While general fundraising is important for universities as they raise the resources they require for their programmes and projects, the prize for all institutions is the establishment of an endowment that pays for the institution’s future. Why is it that the world’s top institutions have put so much effort into building these endowments?

Essentially, endowments are funding donated from private resources such as individuals, trusts, the corporate sector or bequests for the support of the university in perpetuity. Endowment funds are generally not held by the university itself, but are usually governed and managed by independent entities such as a private trust or a special purpose vehicle especially established to support the university. The larger the endowment, the more independent the university can be from the government or corporate interests as it will have the resources to follow its own trajectory. Not only should it have the capacity to choose the best faculty and offer scholarships to the best students (and in cases where endowments are very large, to many students), there should be room to support research or academic programmes that do not receive government funding. For example, all the academic development programmes at our universities which are a key part of ensuring student success receive no government subsidy. Universities have to find the resources from other income such as student fees or donor investment. In our current context approximately 80% of the new student intake requires some academic support to ensure they reach graduation.

Endowment funding can be undesignated in that the university can use the funds as required for operational costs, but endowment funding is more often designated for specific purposes. An endowed chair or professorship provides much budget relief for the institution, but also ensures that the university can recruit the best academics for the post. Sometimes an endowed chair might also include adequate funding for research, post-doctoral students and support staff. In addition, these academic posts can focus on special areas such as environmental studies or children’s rights. Wits intends to establish a chair in philanthropy and one would hope that this would be endowed to ensure continuity. Investment in an endowment that is well managed can provide future funding for cutting-edge research, the maintenance of buildings and libraries and the provision of scholarships and bursaries to talented but needy students.

When the university is going through any form of financial crisis, a well-structured endowment can help to sustain on-going teaching and research. Importantly, endowments enable universities to plan for the longer term, to start new initiatives without waiting for government funding, to invest in buildings and to strengthen the whole academic endeavour by providing the most up-to-date technology. Without the security of an endowment, all these become a matter of annual number crunching and the much-needed security of ensuring a long-term plan for the university does not exist to meet the changing needs of students and faculty.

We have recently been absorbed in the call for zero fee increases and free higher education with the hope that the government will identify the funds required. The payback for a higher government subsidy is government control. Money always requires accountability and students may find that they end up with university degrees that are defined by the government as being relevant. Many of us can remember that the National Party deemed Christian National Education ‘relevant’ and our universities should guard against being driven into an ideological bolthole through total reliance on government support. An endowment provides for some element of independence and becomes a critical part of ensuring that the university can offer an intellectual home for all forms of thought.

Contrary to local myth, South African universities have very modest endowments and some have no endowment at all. The call to spend down these endowments is akin to denying future generations the right to quality education. As most endowment money is designated, it cannot be spent down as there are clear contractual agreements with donors as to how it is to be used. It is not a single pot of money, but is made up of numerous designated funds. The idea is to support future generations of students, not only those of today. If we were to trash these modest resources which in reality would barely cover fees for a year or two, what happens after that?

Here is where universities themselves should be playing a role to promote philanthropic giving, not only from the South African public, but also to instil the importance of philanthropy among their own students. Alumni giving should become a mainstay of university life and we have a lot to learn from universities and colleges elsewhere in the world which have built up a culture of giving back in order to sustain the academic project that drives the arts, sciences and the economy in general. Our universities are the intellectual engine rooms of our society and it is critical that we as the public nurture and sustain them. DM


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