Highlights from the 2019 CASE Annual Conference for Institutionally Related Foundations

June 20, 2019

Foundation executives and other senior staff discussed critical and emerging issues

I recently participated in the Council for Advancement and Support of Education (CASE) Annual Conference for Institutionally Related Foundations (IRF). Financial professionals representing a variety of colleges and universities and their foundations were in attendance. 

I wanted to share the highlights and my key takeaways from this year’s conference.

Public universities and their foundations

Coordinating efforts and financial needs between the university and foundation is critical, and usually handled a little differently at each institution. A few interesting presentations touched on this relationship.

  1. Linking the foundation and university. A panel that included our client, University of North Dakota (UND), “Strengthening the Institution-Foundation Partnership,” was very well received and attended. UND set up a centralized way for students to apply for scholarships that internally linked the University, colleges and their respective deans, and the Foundation. Since over 50% of donors make specific endowments to a particular college or department (for example, a scholarship for incoming freshman majoring in chemistry), the system allows dollars to be aggregated and the deans to know what to allow for in their particular budget. 
  2. Reporting structure for gift officers. Major gift officers are often foundation employees, but the respective colleges they fundraise for might pay half of their salary and they have dotted-line reporting to the college dean. Some schools do something different – gift officers report directly and solely to the college they support. Turnover on both the fundraising side and with the dean’s office can cause disruption, making the higher-level relationships between the university and the foundation even more important. And in some cases, if not aligned properly, they can make coordination more difficult.
  3. Unspent college balances. Fundraising from the foundations gets “credited” to the respective colleges/deans within the university so they know how to spend their donor dollars, but many have high unspent balances for various reasons (saving for a rainy day, saving up for a specific fellowship or professor training, for example). The foundations are concerned because, if donor dollars aren’t being used, it’s harder to go back to those donors for additional funds. For example, one California state school now requires deans to spend their balances down to $25M or they do not get additional funding other state schools use a credit system, where the funds remain in the endowment until the colleges draw, but could there be a “run on the endowment,” which is invested for the long term. No one in the room swept unspent balances into cash accounts; most let them accumulate in the long term investments.

Tax and IRS update on giving

Not surprisingly, legislative and regulatory developments were top of mind.

According to the CASE Voluntary Support of Education Survey, there was a total of almost $47B in charitable contributions to higher ed in 2018. Foundations made up 30%, while alumni (direct) made up an additional 26%.

Distributions of gifts to endowments with restrictions looked like this: 

  • 38% student financial aid
  • 21% other/restricted
  • 15% academic division
  • 13% faculty/staff compensation
  • 8% research
  • 4% other

Distributions of gifts for current operations (with restrictions on use) have one-third earmarked for research, 21% for academic divisions, 18% “other restricted,” and 10% student financial aid. 

Attendees also discussed the December 2017 tax reform bill. (As an aside, we have a webinar on the subject: Steps for Weathering the New Tax Law.) Questions included the separation of UBIT, 1.4% excise tax on very larger endowments (for example, Ivys), standard deduction changes and impact on charitable giving (the consensus was it is far too early to tell), tax on employee fringe benefits (athletic seating discounts, transportation discounts), and excessive (>$1MM) compensation tax.

Private equity bubble?

Some endowments reported very strong Venture Capital returns. While there is a lot of survivor bias in the Cambridge PE Index, a large percentage still plan to increase PE in their portfolios.

Enterprise risk management

This goes beyond finances to deal with cyber security, long-term facilities planning, audit risks/document retention, committee and third-party oversight, talent management and compliance.

On the minds of CFOs

About 35 institutions participated in a roundtable discussion. Topics were selected by going around the room asking participants what was on their minds.

  • OCIO transitions. As of the latest fiscal year end, June 30, 2018, the 2018 NACUBO-TIAA Study of endowments reported that approximately 30% outsource all of the investment function, and 50% outsource some element of the investment function, up from 34% in FY 2010. The question of using search consultants for the search came up, as well as OCIO fees, with ranges from 15-40bps mentioned.
  • Declining enrollments vs. the increased need for scholarships to attract more students. The discussion focused on the survivor race, as there are too many higher ed institutions for the demographics long term. 
  • Investment admin fees and gift fees. Pressure to reduce fees as return expectations are lower, and donors are inquiring; this may result in identifying alternative sources of revenue for the foundations (such as from their respective universities). CASE has a study that was referenced specific to these fees.
  • Spending reductions. Again, this is to adjust for declining return expectations.
  • “Institutional gifts” coming in directly to the university, as opposed to through the foundation. In some cases, the long-term pool on the university balance sheet can supplement the foundation’s endowment.
  • Reserve policies. Should the reserve be a percentage of the short-term assets, a fixed amount, a percent of expenses, etc.? Most schools in attendance had 6-12 month reserves. 
  • Student-managed investment funds. Most have and want to offer more services to students. At one state university, the Board offered a gift-matching policy from the excess operating reserve to assist with fundraising efforts.
  • Endowments are being set up NOT in perpetuity. That’s to increase payout at the donor’s request, consistent with the increased use of donor advised funds (DAF). Some schools are looking to start up their own DAF.

It’s great to share ideas and stay on the pulse of these issues for and with our clients. Look for my upcoming summaries of other conferences, including NACUBO and AGB. Please contact me if you have questions or want to discuss any of these issues. 

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