As endowments rebound, colleges take new approaches with funds

By Laura Diamond

The Atlanta Journal-Constitution

College leaders in Georgia are more relaxed after their endowment fortunes rebounded from record losses, but stressed they are yet not back to normal.

Average investment returns increased by 11.9 percent during the 2010 fiscal year, a sharp turnaround from the drop of 18.7 percent during the 2009 fiscal year, according to a recent survey of 850 colleges by the National Association of College and University Business Officers Commonfund Study of Endowments.

The market value of Emory University's endowment grew by 8.5 percent to $4.7 billion. The Georgia Tech Foundation saw an increase of 11.3 percent to $1 billion. Agnes Scott College grew by 1.9 percent to $235 million.

The gains take some pressure off colleges as they battle financial challenges caused by the recession. Endowments support research, faculty positions, student scholarships and other expenses. Endowments are critical for private colleges, which don't receive state funding.

"We had a good year but it will still be a long time, possibly a decade, before we all return to our previous levels," said Michael Mandl, executive vice president for finance and administration at Emory University.

The college has eliminated 297 filled positions as well more than 450 vacant positions since fall 2008, officials said.

Still, colleges are pushing ahead with their endowment plans. That includes attracting donors who have passion projects that match a university's mission and instilling a sense of philanthropy in students so they will donate in the future.

Currently one in nine professors and department chairs at Georgia Tech are supported through endowments and the goal is to increase that to one in four. Agnes Scott, however, has become less reliant on its endowment by depending more on tuition to support its operational budget.

Some criticize colleges for not spending more of their endowments. The recoveries, they said, should lead to higher payouts. Sen. Chuck Grassley, R-Iowa, a member of the Senate Finance Committee, has said the new figures strengthen the argument to review policies.

Endowments are made of up of donations, often for a specific purpose, that are invested in a permanent fund. The investment allows only for earnings to be spent; the original principal must be preserved. Many determine payouts using a "rolling average" typically over a three-year period. Then they pay out a percentage, often 4 percent to 5 percent, of the principal.

"You don't want to and many times can't take a lot of money out of your endowment to spend right away," said John Hegman, vice president of finance at Agnes Scott. "These funds are to secure and protect the long-term financial needs of the college."

At one point, about 60 percent of the college's operational budget came from the endowment, while now that figure is in the mid-30s, Hegman said. The goal is to be in the low 30s, he said. These steps were taken before returns dropped, he said.

Instead the college is relying more on tuition and has increased enrollment, Hegman said. The college enrolled 265 freshmen this fall, its largest first-year class ever.

Georgia Tech is also tapping into students. Leaders are trying to create future donors by reminding students of the results of giving they see on campus.

"The classrooms they sit in, the paths on which they walk, the scholarships they receive and the professors that teach them are all funded through gifts to our endowment," said Barrett Carson, vice president for development. "We like for our donors to meet students so they can see the benefits of their gifts, but it also helps students realize that philanthropy is all around them."

A $1 million gift can create an endowment for a mid-career professor, Carson said. An endowed dean would cost a donor about $2.5 million. Endowments don't necessarily cover the complete costs for these positions. Less than 10 percent of Tech's operating budget is supported through endowments, he said.

People who give to an endowment tend to be more involved with the college, said Susan Cruse, Emory's senior vice president for development and alumni relations. Endowments establish another connection with the college while insuring the college's commitment to the program or position established with the money.

Cruse has seen increased interest in planned giving which allows people to give or establish an endowment upon their death. Carson said about 18 percent of all Georgia Tech gifts are provided this way.

Donations are strong for the 2011 fiscal year, which started July 1.

Georgia Tech has already received $17.1 million in outright gifts. That's more than the $16.6 million received during fiscal year 2009 and close to the $22.4 million received last year, Carson said.

"I'm intuitively signing thank you letters," Carson said.

Endowments begin a return to normal

After watching endowment decline by record numbers for the 2009 fiscal year, colleges saw a rebound during the 2010 fiscal year, which ended June 30. Here is how some Georgia colleges fared:

College / foundation ... 2010 endowment ... 2009 endowment ... 2008 endowment ... Change for 2010

Emory University ... $4.69 billion ... $4.33 billion ... $5.47 billion ... 8.5%

Georgia Tech Foundation ... $1.05 billion ... $944.3 million ... $1.27 billion ... 11.3%

University of Georgia Foundation ... $491.2 million ... $456.1 million ... $592.6 million ... 7.7%

Spelman College ... $295.2 million ... $285.3 million ... $351 million ... 3.5%

Agnes Scott College ... $235 million ... $230.6 million ... $307.4 million ... 1.9%

Medical College of Georgia Foundation ... $101.8 million ... $90.5 million ... $121.3 million ... 12.4%

Georgia State University ... $87.5 million ... $75.8 million ... $98.6 million ... 15.5%

Source: NACUBO-Commonfund Study of Endowments 2010, 2009 reports.

Note: Percent change includes investment returns, expenditures, withdrawals and gifts. Percentages and endowments are rounded.