Joining the Endowment Fund Crowd

For university vice-chancellors and department chiefs needing to fund multi-year research projects, yet still subject to annual variations in government grants, life can be extremely stressful.

The only known antidote to the ups and downs of annual grants is the endowment fund — which contributes a smooth flow of income from long-term investments accumulated thanks to donations by individuals and corporations.

Until recently endowment funds were a luxury confined to high-calibre US universities, led by Harvard University’s US$ 32.3 billion fund. Yale and Texas University have $20 billion each, and Stanford and Princeton $18 billion.

Leading the endowment fund elite

Leading the endowment fund elite

Tax incentives, active alumni offices and a culture of giving made this a uniquely American phenomenon. In Europe, where the University of Cambridge leads with EUR 4.2 billion, these funds may be the result of centuries of giving.

Now Brazil’s elite learning institutions are bidding to join the privileged ranks of their American cousins.

To date, all research-based universities in Brazil depend on Federal and state government funding, with support from some state-owned companies. Private donations are negligible. And at R$ 42,2 billion, the 2014 federal education budget is flat.

So eight schools representing the Brazilian ‘Ivy League’ are setting up investment funds, even though Brazilian tax law does not yet offer incentives.

They are: Technological Institute of Aeronautics (ITA); the Polytechnic School (Poli); and the School of Economics, Business Administration and Accounting (FEA) of the University of São Paulo (USP), in addition to the Getúlio Vargas Foundation (FGV), the Federal University of Rio de Janeiro (UFRJ), the Insper Institute of Education and Research, the Mauá Technology Institute and Mackenzie Presbyterian University.

University of São Paulo Law Faculty: candidate for sponsorship?

University of São Paulo Law Faculty: predictable candidate for sponsorship?

So far, though, the most visible success story for endowment funding is not a university but a foundation charged with distributing 1% of the tax revenues from Brazil’s most prosperous state — São Paulo — to further higher learning.

Thanks to years of burgeoning tax revenues, annual budgets at the São Paulo Research Foundation (FAPESP) have risen to over US$430 million. What’s more, an investment fund is permitting FAPESP to accept long-term funding commitments at the universities it finances. The value of its local currency funding rose 10% in 2012. You can read a report by clicking here.

In May 2013 FAPESP announced a US$680 million package of long-term investment in 17 cutting-edge areas of scientific knowledge, ranging from neurotechnology, stem cell research and biomedicine, right through to molecular physics. FAPESP will commit funding to named projects for 11-year periods. So Brazil is bucking a trend visible elsewhere, characterised by squeezed budgets and shorter term funding. You can read about the funding by clicking here.

Even before this announcement, FAPESP had been using endowment funding to back long-term research projects at universities in São Paulo, including its flagship BIOTA biodiversity programme that has been running since 1999. BIOTA involves 1,200 researchers and international partnerships with bodies including Britain’s NERC (Natural Environment Research Council.) BIOTA enabled the discovery of more than 1,800 new species and over 1,000 scientific papers have been published about its work.

University of São Paulo Campus

University of São Paulo Campus

Today there is little or no culture of corporate or individual giving, and instead the state exercises an overwhelming influence at the best schools. However, there is a draft law before the Education Committee of Congress that proposes the establishment of an endowment fund at every federal institution of higher education in Brazil. Although the proposed law would exempt donations to endowment funds from tax and for grant individual or corporate donors up to 12% in income tax deductions, it is still stuck in Congress.

Endowment initiatives will first need to overturn a restrictive system that offers no tax incentives, deductions or exemptions for donations made to funds already in existence. A case in point is the endowment fund established in 2011 by São Paulo Polytechnic, with a goal of raising R$25 million in donations. Ten different types of taxes are levied on the fund, and donations are taxed at 4%, despite the school’s non-profit status.

According to Rui Albuquerque, an advisor to the president of the Technological Institute of Aeronautics (ITA), “If we can succeed in effecting new regulations for endowment fund investment tax issues, we will also be able to take a qualitative step forward, and this will surely give rise to a number of opportunities for establishing funds.”

In a talk, Albuquerque told a conference on higher education funding – Excellence in Higher Educationco-sponsored by the Brazilian Academy of Sciences (ABC) and FAPESP, that “the clearer the importance of this type of private financing to research becomes, the higher will be the number of examples that will enable us to change the absence of a culture of private corporate investment.”

Could Brazilian Universities successfully emulate this model?

Could Brazilian Universities successfully emulate this model?

You can read a full article on the status of university funding by the Brazilian journalist Elton Allisson by clicking here.

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