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GW to outsource management of $1.375 billion endowment
Question of the Day
Joining a growing trend of universities outsourcing services and functions traditionally done in-house, George Washington University this month said it was enlisting an outside investment firm to manage the school’s $1.375 billion endowment fund.
Administrators say the outsourcing, in an age of rising tuition and tighter institutional budgets, can lower costs and allow schools to focus on their core educational mission. From bookstores and landscaping to email and finances, the ivory tower is turning to the private sector to stay in business.
In GW’s case, outsourcing the endowment oversight will cost six employees of the nine-person investment office their jobs. Two investment officials will remain and aid the outside management firm.
“The university decided that the best option for managing the investment of its growing endowment is to take advantage of the broad expertise and experience that an investment firm can offer,” said Maralee Csellar, George Washington University director of media relations, in an email.
George Washington has already outsourced food, mail and maintenance work at its 25,000-student campus in downtown Washington.
Charles Skorina, managing partner of an executive search firm that recruits chief investment officers, said the outsourcing of food service and bookstores is normal, because such operations usually are cost centers. The endowment fund, on the other hand, is a profit center.
“You have to think carefully before you outsource a profit center,” he said, adding that large endowments also aren’t outsourced often because of the “nature of school giving.”
“You almost never see endowments or foundations over a billion dollars outsource, because they generally want to keep track of their money, they generally want a chief investment officer on staff, and it’s good for fundraising,” he said.
Andrew Gillen, senior researcher at Education Sector at American Institutes of Research, agreed that handing over control of an institution’s financial nest egg takes outsourcing to a new level.
“For something like endowments, it would be more of a concern than outsourcing landscaping,” he said. “Once you’re talking about the budget, putting it into an outsider’s hands could be scary.”
But investment firms contend they can handle assets more efficiently — and institutions looking to save money and focus on education are taking the plunge. For some in leadership positions at high-profile schools, it’s a way to take potentially controversial issues off the table.
“A lot of boards say, ‘I don’t need this headline risk,’” Mr. Skorina said.
In 2013, the number of universities moving to outsource investment management grew to 40 percent — up six percentage points in a year, according to a report by the National Association of College and University Business Officers (NACUBO).
Of the 835 institutions polled, 85 percent reported using an outside consultant.
“Once you have a lot at stake, you’re much more likely to go to the person whose job it really is to manage these kind of funds,” said Allen Sanderson, a University of Chicago economist. Whether it makes sense for a particular institution, he said, comes down to calculating the numbers and weighing the risks.
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