The past two years have brought the country’s history of racial inequity into sharp focus. One of the many areas in which racial disparities persist is the endowments of historically black colleges and universities (HBCUs). According to a government study, HBCUs have a $15,000 average endowment per student, while comparable non-HBCUs have an average $410,000 endowment per student. HBCUs therefore enjoy less financial stability and security. They may also face challenges providing scholarships and academic support for students and financing teaching, facilities management, and research activities.
One cause for the staggering difference in HBCU and non-HBCU endowments is that wealth-building strategies used by non-HBCU institutions are inaccessible to most HBCUs. For example, few HBCUs invest their limited endowments in venture capital and private equity funds, whose high returns drive growth in many non-HBCUs. A variety of structural barriers such as minimum investment requirements, perceived risk, long investment horizon, and not being well connected to the venture capital community, inhibit HBCU participation.
To help spur HBCU participation in the venture capital asset class and build wealth in HBCU endowments, we formed a pre-launch fund that allows venture fund managers to donate an ownership stake in their venture capital funds to a pooled fund and makes HBCUs partial owners of the fund. Volunteer lawyers from our investment management and tax practices developed a bespoke legal structure to ensure the tax-deductibility of fund managers’ donations of fund interests, which is important to make the pooled fund sustainable. The pooled fund will include HBCUs within the community of limited partners that regularly benefit from the success of and opportunities flowing from venture capital funds.