04/11/2014 - 08:28

Wealth of knowledge in uni assets

04/11/2014 - 08:28


Upgrade your subscription to use this feature.

Like all businesses, university assets funds should be put to work.

Wealth of knowledge in uni assets
FLOWERING OF IDEAS: UWA was ranked fifth among Australia’s 39 higher education providers with just more than $500 million in investment assets.

Like all businesses, university assets funds should be put to work.

The controversial decision by the Australian National University to cut several leading Western Australian resources stocks from its massive investment portfolio begs a significant question – why does such an institution have $1 billion sitting outside the proper functions of its business?

Universities like ANU are mainly state and federally funded organisations established to provide tertiary education. Yet some have amassed fortunes on the side and, as a result, have become big fund managers in their own right – a skill well outside their core reason for being.

It is worth asking whether this is the best use of the university’s management time, and the funds themselves. After all, universities paint themselves as the hubs of innovation, the educators of the next generation of thinkers, and the researchers solving the problems of tomorrow.

They are not fund managers.               

So it’s fair to ask, especially with the amount of public money devoted to tertiary education, if the funds they have would be best employed in that core business rather than sitting on the sidelines as a balance sheet item. Perhaps the sector’s own bleak assessment of the direction of government spending will be a catalyst for this anyway?

I know that if I was a world-leading expert I’d want those funds put into my research project, not invested in blue chip shares funding the work of a listed company.

Of course, many universities around the world have amassed huge fortunes. Harvard University, founded in 1636, has an endowment fund worth about $30 billion.

It is probably fair to say that the most oldest and prestigious institutions tend to have the best asset base.

Is that the chicken or the egg? It suggests to me that older universities initially had less competition for brains, breeding the success that brought prestige, which in turn appears to attract bequests and donations used to entice yet greater minds … and so the cycle goes on.

Youthful ANU does the break mould in that respect. Despite being one of the youngest of the nation’s Group of Eight leading universities, ANU has amassed an investment portfolio that puts most of Australia’s original sandstone universities in the shade, according to data collated by the federal Department of Education from the annual reports of 39 higher education providers.

The department’s adjusted statement of financial position for each HEP shows that, in 2012 ANU, which was established by the federal government in 1946, had almost $955 million in what appear to be investment assets.

At the end of the same year, only the University of Melbourne, founded in 1853, had similar assets amounting to more than that (worth $1.12 billion).

The nation’s oldest tertiary education institution, the 164-year-old University of Sydney, had about $770 million in investment assets and the University of NSW, created just after ANU, had about $570 million.

The University of Western Australia came in comfortably at fifth with just more than $500 million of these assets, no doubt partly due to the legacy of founding chancellor Sir John Winthrop who bequeathed more than £425,000 a few years after it opened its doors to students in 1913.

By this measure, ANU represented an astonishing 12 per cent of the cumulative $7.77 billion in financial and investment assets held by the 39 universities.

In fact, the top five universities held 43 per cent of these assets.

It would be interesting to see if academics at any of those universities advocate means testing of government payments or the need to redistribute wealth from the haves to have nots. That would create quite a ruckus, especially given the current budgetary pressures.

I respect any organisation that has managed its finances well and given itself an investment buffer to ride through financial difficulties. To be fair, some of those assets are bequests and donations held in trust to fund scholarships, research, professorial positions, prizes or building works over a period of time and, therefore, cannot be considered for recurrent spending.

In ANU’s case about one quarter of the funds are restricted

I am also big backer of philanthropy, and private funding for universities is a major part of that because education and research, especially in areas such as health, attract the interest of many who wish to donate substantial sums of their own money.

Bequests, donations and sponsorships are recognition of the economic value of universities and, to a certain degree, reward those institutions for their success at their core tasks. The invested funds produce annual income that can contribute to the pursuit of various educational causes.

Nevertheless, I still wonder why a public institution founded and funded by the taxpayers of Australia needs to have $1 billion parked on the side, with around one third of that held in a portfolio of Australian shares?

This is more than its total revenue during the year in question.

Few businesses could afford hold that amount of capital for investment outside of their own operations. If the WA companies flagged for disinvestment by ANU – Sandfire Resources, Sirius Resources and Iluka Resources – had that kind of money sitting around you’d be sure investors would want it deployed or handed back.

Maybe the federal government ought to have the same view.


Subscription Options