Former UNC Chancellor Holden Thorp said that because commission is involved in investment work, it is easier for universities to hire management companies to work with endowments so they can operate outside of the university’s compensation structure.
“It's by far the most common structure to have,” Thorp said. “And UNC set theirs up pretty early for a public university, but it's by far the most common way of doing it in today's world.”
The profits made off of invested endowment funds are used to meet university needs, though often directed by the intent of what donors want to sponsor.
Higher education futurist Bryan Alexander said university endowments are composed of multiple accounts, many of which are already spoken for.
“They're reserved for certain purposes, so they might be an account to fund an endowed chair, for a professor in a certain department, It might be devoted to an athletic team, it might be devoted to a certain scholarship fund, and so on,” Alexander said.
Butler said one of these directed purposes at UNC is student scholarships.
For example, if a donor made a $100,000 gift toward student scholarships, the management company would invest the principal and put the profits made off of the investment toward student scholarships. Butler said the return on investment is historically around 5 percent.
But the spendable side is not exclusively used for scholarships. The funding, labeled as the Chapel Hill Investment Fund, is divided among a number of causes.
Spendable funding coming from the Chapel Hill Investment Fund ranges from 4 to 7 percent of the fund’s market value. According to the UNC Management Company’s 2019 fiscal year report, the spendable funds were distributed at a 4.5 percent rate and allocated as follows:
- 44 percent of the fund went to professorships.
- 20 percent went to departmental use.
- 14 percent went to scholarships.
- 9 percent went to unrestricted funding.
- 5 percent went to fellowships.
- 5 percent went to libraries.
- 3 percent was considered miscellaneous unrestricted funding.
Collectively, this spending amounted to $167.2 million.
The most flexible of these funds is unrestricted funding, which is meant to be available for immediate use — particularly based on unexpected need. Butler said COVID-19 has driven University Development to push for more donors to aid the University in this area.
“Unrestricted funding allows our campus leaders to have flexibility to address immediate needs,” Butler said. “I mean, there are tons of those needs out there. But we really think that's special funding.”
Alexander said there are multiple arguments for how unrestricted funding should be used in the context of the pandemic.
“One is to plow it into the general fund, just to keep the campus operating, another is that it should be devoted to students,” Alexander said. “And that could be in the form of scholarships, it might be in the form of financial support for students who are suffering various hardships due to the pandemic.”
Contrary to many other areas in higher education, Butler said endowment fundraising did not face a larger financial strain due to the pandemic. In fact, the University raised over $7.7 million dollars on this year’s annual Give UNC day, its highest recorded Give UNC day to date.
“We're very fortunate here to have really committed donors,” Butler said. “And so, of course, some of our dollars are down a little bit. But what we're seeing is that donors are really supporting us.”
Thorp said other University-related finances outside of the endowment will be subject to greater strains due to the pandemic.
“It's on the auxiliary revenues, the hospital revenues, and probably eventually, on what the state appropriations will be, because, for sure, North Carolina is going to collect less tax revenue this year,” Thorp said.
In an attempt to combat current financial challenges that individual students face due to COVID-19, some endowment funding is being directed toward the Carolina Student Impact Fund, which was set up in March as students struggled to leave campus and maintain the resources they needed.
“That's what the impact fund is set up for, for students who have unanticipated needs that come up in emergencies,” Butler said. “And it's emergency funding to really help them as they work through those kinds of situations.”
Moving forward, Butler said the University Development department continues to advocate for the University’s most pressing needs.
Thorp said that the endowment is best considered a tool meant to make an impact beyond what is immediately apparent, and serves an important role in the University’s ability to carry on in the future.
“The endowment's job is not just to help students who are at Carolina now, it's to help the students that are going to be at Carolina 50 and 100 years from now,” Thorp said. “And so, you don't want to make a decision now that changes your ability to do that because those students of the future are just as important as the ones we have now.”