PGIM, UNCF Study Finds Private HBCU Endowments Need Investment Support

Rhea-AI Summary

A joint study by UNCF and PGIM, the global asset management business of Prudential Financial, Inc. (NYSE: PRU), highlights the challenges faced by Historically Black colleges and universities (HBCUs) in growing their endowments. The study aims to explore how the asset management industry can collaborate with HBCUs to optimize investment returns for long-term growth. The research emphasizes the limited resources of private HBCUs compared to non-HBCUs, affecting their ability to manage risk and make asset allocation decisions.

Economist

The report highlighting constraints on private HBCUs in growing their endowments is significant in understanding the broader economic implications of educational inequality. The disparity in resources between HBCUs and non-HBCUs can lead to a perpetuation of the wealth gap, as endowments are vital for scholarships, faculty recruitment and research funding. Economists would analyze the multiplier effect of increased endowment funding, which could lead to enhanced economic activity through better-equipped graduates entering the workforce, potential increases in research and innovation and job creation within these institutions.

Furthermore, economists would consider the long-term societal benefits of a more equitable distribution of educational resources. By enabling private HBCUs to grow their endowments, there is potential for a positive feedback loop, where increased investment in education leads to higher earning potential for graduates, which in turn can lead to more philanthropic giving back to these institutions, fostering a virtuous cycle of growth and development.

Market Research Analyst

From a market research perspective, the study serves as a call to action for asset managers to consider the specific needs and challenges of HBCUs. The underrepresentation of private HBCUs in the asset management client pool could represent an untapped market opportunity. Asset managers who specialize in tailoring strategies for institutions with limited resources could differentiate themselves and attract HBCU clients.

Market analysts would also emphasize the importance of understanding the unique investment preferences and constraints of these institutions. The study suggests that there is room for innovation in investment products and services that cater to the specific goals and risk profiles of HBCUs. By optimizing investment strategies for HBCUs, asset managers can not only contribute to social equity but also potentially unlock new revenue streams.

Financial Analyst

Financial analysts would scrutinize the potential impact of optimized investment returns for private HBCUs on their financial sustainability. A robust endowment can provide a stable source of income, reducing reliance on tuition and government funding. This financial independence is crucial during economic downturns or periods of reduced public funding. Analysts would evaluate the risk-return profile of the current endowment portfolios of HBCUs and suggest strategic asset allocations that could enhance long-term returns without exposing the institutions to undue risk.

Additionally, financial analysts would assess the potential for improved financial performance of HBCUs to positively influence their credit ratings. This, in turn, could lower borrowing costs for these institutions, allowing them to invest more in their core educational missions. By providing a detailed analysis of the financial mechanisms at play, financial analysts would illuminate the path towards greater financial resilience for HBCUs.

Joint study identifies private HBCUs’ main constraints in growing their endowments and how asset managers can help optimize their investment returns for the long term.

NEWARK, N.J.--(BUSINESS WIRE)-- Historically Black colleges and universities (HBCUs) are a critical learning path for Black students seeking quality higher education in the United States. Yet, these institutions face systemic challenges in accumulating substantial endowments, a crucial factor for ensuring institutional stability and growth. A new study launched by UNCF (United Negro College Fund) and PGIM, the global asset management business of Prudential Financial, Inc. (NYSE: PRU), explores these challenges and how the asset management industry can work with HBCUs to achieve better outcomes.

“Investing in Change: A Call to Action for Strengthening Private HBCU Endowments,” details the perspectives of endowment professionals from nearly one-third of all private HBCUs gathered through a comprehensive online survey. Additionally, HBCU endowment professionals participated in a focus group, providing deeper insights into their experiences and the ways in which they use their resources to uplift students and their communities.

The study makes clear that private HBCUs have far fewer resources than non-HBCUs when it comes to overseeing their endowment portfolios — placing limitations on how they are able to use their endowment, manage risk and make asset allocation decisions.

“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,” said Sancia Dalley, managing director and head of PGIM’s DEI Portfolio and HBCU Investment Strategy. “PGIM’s work with HBCUs and UNCF is one way we can help fuel an ecosystem that is already producing a strong talent pool of future professionals for our industry.”

“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,” said Ed Smith-Lewis, vice president for strategic partnerships and institutional programs at UNCF. “Using this study as a foundation, UNCF is leading the charge to forge a new era in which HBCUs are able to cultivate the endowments required to accelerate their work and impact. We’re proud to partner with Prudential and its asset management business PGIM on this study and look forward to our continued strong partnership.”

Key Findings

The study indicates four main constraints for HBCU endowment professionals tied to lack of funding and the comparably small size of their endowments:

• Smaller HBCU endowments limit infrastructure and capabilities. Eighty-six percent of the private HBCU institutions in the survey use their endowment predominantly to fund scholarships, with little budget left to support other essential needs.
• HBCUs steward their endowment with significantly fewer investment management resources. Private HBCUs on average have only one internal investment management professional, often as part of a broader role, compared to an average of six internal investment staff at non-HBCUs.
• HBCUs are substantially more risk-averse than non-HBCUs. Currently, a modest majority of HBCU respondents (63%) classify their risk tolerance as moderate, with the remainder preferring a more conservative approach. Only 13% of private HBCUs have specific resources allocated to risk management activities, significantly lower than the 54% of non-HBCUs that do.
• HBCUs have smaller alternatives allocations than non-HBCUs. On average, private HBCUs are holding about 27% less of their portfolio in alternative asset classes compared to non-HBCUs (14% vs. 41%). These differences suggest HBCUs may benefit from more sophisticated liquidity management tools and processes, as well as a higher risk tolerance, to optimize their long-term returns.

Opportunities for engagement with HBCUs

The asset management industry is well-positioned to help HBCUs with these challenges:

• Offering investor education and access to innovative investments and diversification solutions: Most private HBCU endowments point to both of these areas as avenues that could enhance their investment outcomes.
• Sharing risk management expertise: There is a significant need for advanced risk management support among HBCUs, especially to navigate macroeconomic challenges, including interest rate and inflation risks.
• Providing portfolio management oversight: Collaborating with experienced partners could guide HBCUs toward adopting moderately higher risk tolerances and increasing allocations to alternative asset classes.
• Supporting endowment pooling initiatives: The smaller assets of HBCUs limit their access to investment opportunities available to well-capitalized institutions. Many private HBCUs (44%) are interested in pooling their endowments, which could provide shared resources and improved investment insights.

The PGIM and UNCF study is part of Prudential’s broader HBCU strategy to support HBCU leadership, faculty and students, aimed at increasing access and exposure to the financial services and investment management industries. Since 1978, Prudential has provided more than $1.4 billion to help eliminate barriers to financial and social mobility for underserved and underrepresented populations.

“Brilliance exists in every area of our society, but access to the tools and resources needed to thrive is often a barrier,” said Kathy Sayko, PGIM’s chief diversity, equity and inclusion officer. “This study and PGIM’s ongoing partnership with the HBCU community are an extension of our responsibility to support the next generation of investment leaders, so they can be competitive and thrive in our industry.”

For the full study findings, read Investing in Change: A Call to Action for Strengthening Private HBCU Endowments at pgim.com/HBCU.

ABOUT UNCF

UNCF (United Negro College Fund) is the nation’s largest and most effective minority education organization. To serve youth, the community and the nation, UNCF supports students’ education and development through scholarships and other programs, supports and strengthens its 37 member colleges and universities, and advocates for the importance of minority education and college readiness. While totaling only 3% of all colleges and universities, UNCF institutions and other historically Black colleges and universities are highly effective, awarding 15% of bachelor’s degrees, 5% of master’s degrees, 10% of doctoral degrees, and 19% of all STEM degrees earned by Black students in higher education. UNCF administers more than 400 programs, including scholarship, internship and fellowship, mentoring, summer enrichment, and curriculum and faculty development programs. Today, UNCF supports more than 50,000 students at over 1,100 colleges and universities across the country. Its logo features the UNCF torch of leadership in education and its widely recognized trademark, “A mind is a terrible thing to waste.” Learn more at UNCF.org or, for continuous updates and news, follow UNCF on Twitter at @UNCF.

ABOUT PGIM

PGIM, the global asset management business of Prudential Financial, Inc. (NYSE: PRU), is a global investment manager with more than $1.2 trillion in assets under management as of Sept. 30, 2023. With offices in 18 countries, PGIM’s businesses offer a range of investment solutions for retail and institutional investors around the world across a broad range of asset classes, including public fixed income, private fixed income, fundamental equity, quantitative equity, real estate and alternatives. For more information about PGIM, visit pgim.com.

Prudential Financial, Inc. (PFI) of the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom, or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom. For more information please visit news.prudential.com.

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View source version on businesswire.com: https://www.businesswire.com/news/home/20240129943412/en/

PGIM

Alyssa McMahon

+1 973-204-5808

alyssa.mcmahon@pgim.com

UNCF

Roy Betts

+1 240-703-3384

roy.betts@uncf.org

Source: PGIM

FAQ

What is the purpose of the joint study by UNCF and PGIM?

The joint study aims to identify the main constraints faced by private HBCUs in growing their endowments and how the asset management industry can help optimize their investment returns for long-term growth.

What is the ticker symbol for Prudential Financial, Inc.?

The ticker symbol for Prudential Financial, Inc. is PRU.

How do private HBCUs differ from non-HBCUs in terms of resources for managing endowment portfolios?

Private HBCUs have far fewer resources than non-HBCUs when it comes to overseeing their endowment portfolios, placing limitations on how they are able to use their endowment, manage risk, and make asset allocation decisions.