Focused on the University Endowment? You May Be Overlooking Your Largest Investment

| February 24, 2017

by Sean Sweeney

Every so often we are stunned by the sheer size of a university’s endowment. Harvard University’s endowment in January 2017 was $37.6 billion. This is greater than the annual GDP of 101 countries. The top 10 higher education endowments have a combined value of over $185 billion. While endowments are often considered a university’s greatest asset, it is the physical plant — the land, buildings, and equipment — that is typically the highest valued assets of the institution. These spaces allow administration, faculty, researchers, students, and alumni to study, innovate, collaborate, and participate in university life.

Why is it that institutions often put more emphasis on choosing leaders for their endowment rather than for their facilities? The simplest reason may be that performance of the endowment is an easy metric to track. A “good” leader would provide a high return on investment, whereas a “poor” leader would have returns below other institutions. The performance of the endowment becomes the standard to which the individual is judged.

Another reason may be that administrators do not understand the requisite skills that facility leaders must possess to achieve success. Misconceptions held by some schools regarding physical versus investment assets cause them to value the investment professional more than the facility manager. Both job types require the same skills, and here is why.

Both the physical plant and the endowment grow year to year. A common misperception is that the value of the physical plant remains stagnant. This is simply not the case. The replacement value of a campus typically increases due to cost escalation and a constant flow of projects adding to the overall value. Choosing appropriate projects to pursue is just as important as choosing the appropriate financial investments. The quality of the underlying asset affects the quality of the entire investment.

Managing the endowment involves knowledge of complex financial instruments. Indeed, this is true. Facility leaders make decisions on complex projects which incorporate differing programmatic themes like flexibility of space, new regulations and requirements, technological innovations, sustainability concerns, and assumptions of risk.

Endowments and buildings are not liquid. Capital investments cannot be bought and sold like a commodity, and campuses are occasionally saddled with visual reminders of poor decisions dating back decades. Aging buildings like to haunt us. Approximately 81% of buildings on U.S. campuses are more than 10 years old and 53% are over 25 years old. These buildings have systems that are getting close to failure and need major investments. Deciding on how to prioritize which building or system gets funded greatly influences the annual spend as well as future funding requirements.

Managing facilities groups is like running a small army. Leading a college or university’s facilities department is equally matched to the challenges of leading the institute’s endowment. Operations, janitorial services, maintenance, preventive maintenance, planning, engineering, and capital renewal activities, all complicated by labor agreements, require constant leadership. Recruiting, mentoring, and motivating the staff, coupled with good procedures and quality management, is reflected in the overall effectiveness and appearance of the campus. In addition, facility leaders have to deal with internal clients that perceive the work as too invasive, too expensive, or simply takes too long.

When institutions appreciate the importance of proper management of its physical plant, it begins to unlock decision making that enhances the overall value of its physical assets. Elevating the prominence of the facility leader in the institution’s strategy will produce better investment decisions, improve alignment of capital spending, improve investment timing, and, overall, deliver better outcomes. Finally, placing the appropriate emphasis on hiring and supporting a facilities leader will bring even greater returns to the institution.

Source: National Center for Endowment Statistics, “Sightlines: State of Facilities in Higher Education 2015.”


Sean Sweeney

Sean Sweeney is associate vice president at Arcadis. 

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Category: All, Contributor, Education

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