Prudential/PGIM study shows systematic challenges HBCUs face in growing endowments

Study, in conjunction with United Negro College Fund, also offered ways asset management industry can help

Historically Black Colleges and Universities — despite offering a critical learning path for Black students seeking quality higher education — still face systemic challenges in accumulating substantial endowments, a crucial factor for ensuring institutional stability and growth, according to a study released Monday.

The study, “Investing in Change: A Call to Action for Strengthening HBCU Endowments,” was launched by the United Negro College Fund and PGIM, the global asset management business of Prudential Financial. The study illuminated the challenges HBCUs face — and discussed how the asset management industry can work with HBCUs to achieve better outcomes.

The study makes clear that private HBCUs have far fewer resources than non-HBCUs when it comes to overseeing their endowment portfolios — placing limitations on how they are able to use their endowment, manage risk and make asset allocation decisions.

The study indicates four main constraints for HBCU endowment professionals tied to lack of funding and the comparably small size of their endowments:

  • Smaller HBCU endowments limit infrastructure and capabilities: 86% of the private HBCU institutions in the survey use their endowment predominantly to fund scholarships, with little budget left to support other essential needs;
  • HBCUs steward their endowment with significantly fewer investment management resources: Private HBCUs on average have only one internal investment management professional, often as part of a broader role, compared to an average of six internal investment staff at non-HBCUs;
  • HBCUs are substantially more risk-averse than non-HBCUs: Currently, a modest majority of HBCU respondents (63%) classify their risk tolerance as moderate, with the remainder preferring a more conservative approach. Only 13% of private HBCUs have specific resources allocated to risk management activities, significantly lower than the 54% of non-HBCUs that do;
  • HBCUs have smaller alternatives allocations than non-HBCUs: On average, private HBCUs are holding about 27% less of their portfolio in alternative asset classes compared to non-HBCUs (14% vs. 41%). These differences suggest HBCUs may benefit from more sophisticated liquidity management tools and processes, as well as a higher risk tolerance, to optimize their long-term returns.

“Our hope is that this research initiates critical conversations about how to level the playing field for HBCU endowments and how asset managers can engage with these vital institutions to help them meet their long-term goals,” Sancia Dalley, managing director and head of PGIM’s DEI portfolio and HBCU investment strategy, said.

“PGIM’s work with HBCUs and UNCF is one way we can help fuel an ecosystem that is already producing a strong talent pool of future professionals for our industry.”

The study also offered opportunities for engagement with HBCUs, including:

  • Offering investor education and access to innovative investments and diversification solutions: Most private HBCU endowments point to both of these areas as avenues that could enhance their investment outcomes;
  • Sharing risk management expertise: There is a significant need for advanced risk management support among HBCUs, especially to navigate macroeconomic challenges, including interest rate and inflation risks;
  • Providing portfolio management oversight: Collaborating with experienced partners could guide HBCUs toward adopting moderately higher risk tolerances and increasing allocations to alternative asset classes;
  • Supporting endowment pooling initiatives: The smaller assets of HBCUs limit their access to investment opportunities available to well-capitalized institutions. Many private HBCUs (44%) are interested in pooling their endowments, which could provide shared resources and improved investment insights.

The PGIM and UNCF study is part of Prudential’s broader HBCU strategy to support HBCU leadership, faculty and students, aimed at increasing access and exposure to the financial services and investment management industries. Since 1978, Prudential has provided more than $1.4 billion to help eliminate barriers to financial and social mobility for underserved and underrepresented populations.

For the full study findings, click here.