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University trails peers in endowment

New fundraising looks to support financial aid, faculty support and athletics.

Temple’s $262 million endowment lies well beneath the multi-billion dollar endowments of state-related counterparts Penn State and the University of Pittsburgh. Still, Temple continues to compete in terms of expenditures, financial aid and, now, sports.

Temple, which historically has been, and to a lesser degree continues to be, a commuter school, relies primarily on state funds and tuition to pay for its annual budget.

The endowment, which turns over a 4.5 percent annual interest on its 12-quarter average market value into designated programs, cannot provide similar support of larger schools in the state.

Private schools, such as the University of Pennsylvania, typically rely off of larger endowments because its annual funding is not supported by the state. Penn, an Ivy League school, has the largest endowment in Pennsylvania at $6.58 billion, according to the school’s latest financial reports.

However, other state-related schools far surpass Temple in terms of endowment. Pitt leads the state-related schools in Pennsylvania with an endowment of $2.54 billion and Penn State follows with $1.83 billion. Lincoln University is the only state-related university in Pennsylvania with a smaller endowment, which sits at $5.43 million.

Nearby New Jersey state school and fellow Big East member Rutgers University boasts an endowment of $698 million.

The university’s annual expenditure, however, does reflect as wide a gap when compared to similar schools. Temple’s operating budget for the 2012 fiscal year is $1.12 billion, compared to $1.96 billion at Pitt, $4.26 billion at Penn State,  and $2.20 billion at Rutgers.

( INFOGRAPHIC / JOEY PASKO )

( INFOGRAPHIC / JOEY PASKO )

The smaller endowment for the operating budget means that the university must be less reliant on its annual return on investments to provide for programs such as financial aid, scholarships and faculty support.

Executive Vice President, Chief Financial Officer and Treasurer Anthony Wagner used a phrase he heard from Board of Trustees member Leonard Barrack to describe the importance of the endowment in providing additional resources.

“It provides a margin of excellence to provide the stuff you couldn’t do otherwise,” Wagner said, adding that “it’s definitely an issue and it’s why it’s a priority.”

The university’s endowment is comprised of many smaller endowments, each of which returns investments to a particular fund or program within the university.

David Unruh, senior vice president of institutional advancement, compared the endowment to a warehouse filled with boxes, each box representing a specific fund that is set up by a donor to support a specific program.

The approximate $10 million in funds generated annually from the endowment makes up less than 1 percent of the university’s operating budget. Of that, only $150,000 goes toward unrestricted expenditures.

One benefit of having to rely on a smaller endowment, Unruh said, is that the university is not as dependent on restrictive funds to provide for support programs, especially during economic downturns.

“When the financial crisis hit several years ago, many schools had gotten used to living off very healthy endowment returns, and were over-spending and suddenly had commitments that they couldn’t then meet,” Unruh said. “We were in a much better situation.”

The endowment’s asset allocation is determined by the university investment policy and the Board of Trustees, with 30 percent invested in fixed income, 25 percent in domestic equity, 25 percent in international equity, 10 percent in alternative investments and 10 percent in natural resources, Wagner said.

Additional returns over the 4.5 percent allocation are placed back into the endowment to create growth.

The growth of the endowment is additionally spurred by donations from alumni and friends of the university. At Temple, fundraising has historically been less than other universities due to the commuter culture of the school.

“The commuter issue, or the non-residential issue, coupled with the strong relationship we’ve historically had with the commonwealth, over time, has had a deflating effect on giving,” Unruh said.

“There was less urgency for us to invest in fundraising as an institution, there was less urgency for alumni to give to the institution and there was less connectivity to the institution, because the way in which they experienced Temple was as a commuter student, or as someone who was here in the evening, or took several years part-time to finish their degree,” Unruh added. “Students didn’t historically have the same kind of emotional attachment to the place and a cohort of classmates that they shared lots of things in common with.”

The university would like to see the budget’s reliance on funds from the endowment grow beyond 1 percent, even though that makes funding more susceptible to market fluctuations, Wagner said.

“At the end of the day, that is a good problem to have,” Wagner said.

In order to drive contributions toward endowment, the university recently started a marketing campaign to raise $100 million toward scholarships, of which they expect $50 million will go directly into the endowment.

“That will have a much more immediate and then longer term impact on our ability to provide scholarships than just waiting for the market to return over time,” Unruh said.

In the last decade, Temple has averaged $50 million dollars a year in donations, Unruh said. However, most of that money goes directly into specific projects or into the following year’s operating budget.

The beginning of the scholarship fundraiser coincides with the launch of the Temple Made campaign to bolster the prominence of the university.

“It will help us in fundraising because it has the ability to raise the profile of the university,” Unruh said.

Parts of the university’s endowment are also set up to specifically provide support toward the school’s athletic teams, which are all set to join the Big East Conference in 2013.

“The move to the Big East is an opportunity for us to be more visible in really important markets,” Unruh said. “That should have the effect of driving our fundraising success up because people will know who we are and see us as a successful institution.”

“[Whether it will] directly result in fundraising success for athletics remains to be seen,” Unruh added.

John Moritz can be reached at john.moritz@temple.edu or on Twitter @JCMoritzTU.

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