College Endowments in Arkansas Increase in Importance

College Endowments in Arkansas Increase in Importance
(Stephanie Dunn)

Endowments have always been important to private colleges and universities, but public higher education, which has experienced flat state funding or even declines in recent years, is joining private schools in its appreciation for the financial gifts that comprise endowments.

This is the first year Arkansas Business has published a list of the largest college and university endowments in the state, so some explanation is in order. Endowments are money or other assets donated to a college or university. Those assets are then invested — usually fairly conservatively — so they yield an income above the principal, and schools seek to constantly grow that principal.

(Get the list: Top Endowments for Colleges and Universities in Arkansas.)

The University of Arkansas had, by far, the largest endowment in 2015, $948.7 million, according to the National Association of College & University Business Officers and the Commonfund Institute. Its endowment allows the UA “to attract and retain top faculty as well as top undergrads and graduate students,” a university spokesman said.

At second place is Hendrix College in Conway, with an endowment of $181.9 million in 2015, according to the NACUBO and the institute. However, Hendrix’s endowment stands most recently, as of May 31, at $186.8 million, according to Ellis Arnold, dean of advancement at Hendrix (see Ellis Arnold on Hendrix College's Special Bonds with Alumni).

Philip Jackson is president of the Arkansas State University System Foundation, a nonprofit that holds and manages all of the ASU System endowment assets. The ASU Joint Committee on University Investments, which includes both volunteer participants — some of them board members — and system employees, oversees the endowment, which totaled $54.9 million in 2015.

Over the past five years — not including the most recent, fiscal 2016, which ended June 30 — the endowment has seen a return of 8.07 percent, Jackson said.

The investments are “fairly standard stuff,” he said, domestic and international equities, bonds, fixed-income assets, cash and “some alternative investing. And by alternative, I mean some private equity, commercial real estate, that kind of thing.”

The endowment and its growth are important to the university. Many of the scholarships available to A-State students are funded by private resources, both endowment and non-endowment scholarship assets, Jackson said. “Especially in today’s environment of increasing tuition and cost to students, all forms of financial aid are significant, and one part of that, of course, is the private scholarships we offer.”

“Also, endowments are not limited to scholarships,” he said. They’re used to fund research, for professorships, endowed chairs, which “help attract quality faculty and promote faculty development.”

Sixty to 65 percent of A-State’s endowment income goes to private scholarship funding; the rest goes to faculty development, research and student-oriented programs, Jackson said.

The Arkansas State University System Foundation is a “philanthropic partner” with the advancement efforts of the system, which includes the four-year school in Jonesboro and four two-year colleges: ASU-Beebe, ASU-Mountain Home, ASU-Newport and ASU-Mid-South in West Memphis.

For the endowment to provide the same purchasing power, “the same bang for the buck, so to speak, in years to come as we have now, we can’t do that unless we grow the principal,” Jackson said.

Endowments at private colleges and universities tend to be much larger because the schools don’t receive state funding and rely more on endowment income.

Bryan Burks, vice president of advancement at Harding University in Searcy, which is No. 3 on the list with an endowment of $117.9 million, said that “at a private institution, gifts are crucial for the ongoing operation of the organization because there’s not the funding from the state or federal government like there is at a public institution.”

“Our endowment primarily comes from individuals,” as opposed to organizations, he said. And many of those gifts come through estates and wills.

Jackson agreed that the decline in public support for higher education had increased the importance of endowments and “private support in general, not just endowments.”

“The role of private support is far more significant in light of reduced state support,” he said. “I’ve been at ASU for 31 years, and the level of state support has declined and declined — seems to — every year consistently.”

“The response to that has been greater use of private support as well as a greater need for the university to engage in entrepreneurial-type activities and find different revenue streams,” Jackson said. “That would not necessarily be done in an endowment, but universities themselves have to figure out ways to generate revenue.”