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Give, Take, Give More

Date: Wednesday, December 10, 2008
Author: Jay Akasie, iimagazine.com

When Texas oilman Lee Bass pledged $20 million to Yale University in 1995, he envisioned its being spent to create an intensive academic program devoted to Western civilization. But Yale returned the money because administrators had not anticipated that Bass would insist on having the say-so over which professors would take part. Not acceptable, Yale brass ruled.

One would be hard-pressed to find many other instances of colleges refusing such generosity — Yale is in a position to do so because it is so vastly endowed already. Many schools are more than willing to take big donations that come with strings attached. In fact, another Texas billionaire, T. Boone Pickens Jr., donated $165 million to his alma mater, Oklahoma State University, two years ago with the understanding that his hedge fund, BP Capital Management, would manage the money.

Pickens donated the money to the university’s $168 million Cowboy Athletics endowment, and it was earmarked for finishing the OSU football stadium and building a residential village for athletes. It is the most prominent example of a donation structured to take advantage of a recently enacted IRS rule that lets people to donate money to institutions and then manage it. “Since it’s his money, the risk is only to him as the donor and to the athletic department as the beneficiary,” says Kirk Jewell, who, as president and CEO, manages the $448 million OSU Foundation, the university’s much bigger academic endowment, which, Jewell adds, is more conservative than Cowboy Athletics and has guidelines that preclude donors from managing their own contributions.

Pickens seems to have concluded that such restrictions make sense. In October, he announced he was turning what was left of the original $165 million over to university endowment managers. Neither the donor nor the beneficiary would state exactly how much that was, but a good portion of the original gift was lost in BP Capital, which has tanked this year. Pickens is more than making up for it; he said he would give an additional $63 million and that OSU was getting a total of $188 million from him. These figures provide a big clue to how much went down the tubes.

Foundation assets have declined by 17 percent since September, and Jewell says he has put aside $50 million in cash to be used to take advantage of near-term market bargains. Time, it seems, is one advantage that academic endowments have over athletic ones. “We monitor things closely, with a ten-to-12-year horizon, and make a point of not getting terribly excited or depressed,” Jewell explains. “We have every style possible, from long-only to timber to, yes, hedge funds.”

It’s unlikely that alternative investments will fall out of favor anytime soon at OSU, or, for that matter, at most universities. “The management trend at college endowments has been a move toward what they hope are higher returns,” says Brian Flahaven, a university-endowment expert at the Washington-based Council for Advancement and Support of Education. “They’re looking to diversify.”