- The Washington Times - Thursday, March 13, 2014

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.

Investment outsourcing is less popular among the nation’s richest schools, but is growing in that sector as well.

“Among schools with endowments of over $1 billion in assets, the share that have outsourced their endowment function has increased from six percent in 2010 to 10 percent in 2013,” said Ken Redd, NACUBO director of research and policy analysis, in an email statement.

According to a recent endowment report, George Washington’s endowment isn’t faring as well as competitors, but Ms. Csellar said the investment office’s low returns weren’t a factor in hiring an outside investment firm.

“The decision to outsource this function is not a reflection on the investment office or its personnel,” she said. “We appreciate their service to the university.”

According to George Washington’s 2013 endowment report, its assets returned 9 percent last year, with an average of nearly 6 percent in the past five years.

NACUBO reported the 2013 return rate from colleges and universities’ endowment funds averaged 11.7 percent.

A large chunk — nearly 40 percent — of George Washington’s endowment assets are made up of real estate properties managed by an office separate from the investment office. According to a George Washington spokesperson, there are no plans to outsource that office.

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