Did you ever think of why one university is different from another?

If you notice, the top 10 universities in the world are Massachusetts Institute of Technology, Stanford University, Harvard University, University of Oxford, California Institute of Technology, University of Cambridge, Imperial College of London, University of Chicago. These top universities have few things in common; a reputation for being highly competitive, high academic standards, a high rejection rate in admissions, and a house for good research. But they have one special thing in common which I think puts everything together – ENDOWMENT FUND. The five largest university endowments in 2018 were all larger than $25 billion and belonged to Harvard, University of Texas, Yale, Stanford, and Princeton.  

Endowment Fund:

The purpose of the endowment fund is to help ensure University has the financial resources to confidently maintain and expand its leadership in education and research for future generations. Endowments are money and other financial assets donated to universities that are meant to be invested to grow the principal and provide additional future income for investing operational costs and financial aid. There is a common misconception that endowments can be accessed like bank accounts, used for anything at any time as long as funds are available. In reality, University’s flexibility in spending from the endowment is limited by the fact that it is designed to last forever, which is crucial for an institution intended to serve generations of students and pursue research on big questions — questions that cannot be answered in one lifetime. According to a report published on endowment fund, the use of endowment funds is in the two largest categories of funds – support faculty and students, including professorships and financial aid for undergraduates, graduate fellowships, and student life and activities.

Culture and investment framework in India

In India, the culture of building an endowment fund for a private university is at a very nascent stage. Good institutes like IITs and IIMs have an endowment office. We have a good long way to go. Recently IIT Delhi launched Global Alumni Endowment Fund with an aim to achieve $1 billion over the next 7 years.

Currently, there are no specific regulations of Indian Endowment funds. As endowment fund cannot be classified as venture capital fund or mutual fund or a collective investment scheme it doesn’t attract SEBI’s attention. It can further not be classified as non-banking financial institutions. But if University seeking to invest in Indian ventures they are free to do so but keeping SEBI’s investment guidelines in mind.

In my next article, I will share about types of Endowment Funds, how they are built, and how industry, government, and society at large can contribute their share in building the best university.

I would like to know your perspective why Indian Universities are not as aggressive as foreign universities in building endowment fund, what’s stopping them? You can write to me at kaushik.a@rishihood.edu.in