Singapore varsities, schools have billions in endowment funds: What’s the playbook to grow the monies?

[SINGAPORE] The move by the National University of Singapore (NUS) last month to divest at least S$500 million of its endowment funds has put the spotlight on funds managed by educational institutions here.

Endowment funds – which refer to financial assets that generate income for non-profit organisations – are a crucial source of financial support for both global and local education institutions. The funds may, among other things, go towards supporting new initiatives or student scholarships.

Checks by The Business Times showed that apart from local universities, some independent secondary schools here also rely on endowment funds as a source of income.

For example, Anglo-Chinese School (Independent) – or ACS(I) – sought to appoint “fund managers for investment solutions” in July this year, according to Government Electronic Business System (GeBIZ) tender documents seen by BT. The tender attracted a base bid of S$20,000 from Manulife Investment Management (Singapore), who was among four suppliers.

Singapore Chinese Girls’ School (SCGS) also moved to appoint external fund managers in August. Of the two respondents, one was Schroder & Co (Asia) with a total base bid of S$250,000.

The statuses of the tenders by SCGS and ACS(I) this year are still “pending” on GeBIZ as at Nov 5. BT has reached out to both schools for comment for details on their funds.

What endowment funds are used for

Sources familiar with these matters told BT that institutions that have a tradition of fundraising, such as independent schools, typically rely on endowment funds for initiatives.

“The funds could be used to construct a new building, or a new initiative they want to launch,” said one source, who declined to be named.

These endowment funds are also fully invested across a variety of investment types, he added.

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Singapore Institute of Technology’s (SIT) endowment fund, for example, invests in public equity, public fixed income, hedge funds, private equity and private credit, shared the university’s chief investment officer Tan Liping in an interview with BT.

“Geographically, we invest in the US, Europe and Asia,” she said. The allocation percentages are not publicly disclosed.

Tan said SIT also does not disclose actualised long-term returns or return targets publicly. However, she shared that returns “vary from year to year, depending on market conditions”.

NUS’ endowment portfolio – which is valued at more than S$15 billion, according to the Sovereign Wealth Fund Institute – is also spread across segments such as real estate, public and private equity, natural resources and cash.

It is common for endowment funds of universities to be built up over significantly long periods of time. They are typically reserved to support research grants or scholarships for students.

Differences in risk profiles

The difference in investments between secondary schools and universities is likely the level of risk, said a source familiar with endowment funds in Singapore’s educational institutions.

“Independent tertiary institutions are likely to be more conservative in their investing strategy, with less money (than big universities),” the source said.

“The odds of the secondary schools investing in something with high risk – like China venture capital – is low,” added the source.

Consequently, universities would have larger investment movements, as in the case of NUS’ recent divestment to manage liquidity and rebalance its China exposure.

Checks and balances

Very senior and high-ranking officials are appointed to keep endowment funds in schools accountable, sources told BT.

“The investment committees usually comprise of very prominent people, to make sure things are consistently alright (with the funds), with little to no risk of it going bust,” one said.

At SIT, investment objectives require approval at the board level, said Tan.

The board also established an investment committee to oversee the management and investment of the endowment fund. This committee approves the strategic asset allocation, selection of fund managers and policies governing the investment activities, she added.

Additionally, a yearly external audit is conducted on the financial performance of SIT’s endowment fund, while an internal audit is done periodically on the investment office and the investment portfolio.

Outlook for private equity

The recent performance of private equity funds have raised concerns over its impact on education institutions’ own endowment funds.

Investment companies such as GIC are reportedly selling US$1 billion of stakes in private equity funds, according to a Bloomberg report from Oct 27. In Hong Kong, Blackstone’s investment in the commercial property sector has experienced significant devaluation, following a US$17 billion rush.

Apart from NUS, elite US universities have recently been offloading various parts of their private equity portfolios, too, according to a Fortune report in June. This is in light of how funds are taking longer to return money to investors, which has led to schools such as Yale and Harvard making sales at a discount, as endowments seek greater liquidity during a period of economic uncertainty.

But as for school endowment funds in Singapore, sources told BT that divestments do not imply that the fund is not doing well.

“A sale (by a school) could simply mean that they are not that keen on certain asset classes (anymore),” one explained. “Universities could have liabilities built into the future (that they need to deal with) too.”