Last month, Commonfund OCIO hosted an inaugural convening of institutionally-related foundations (IRFs) - foundations that are a separate entity and serve as administrative and often fundraising support for higher education institutions - in a discussion on administrative fees.
Fees were identified as a key area of consideration for these institutions at Commonfund’s annual Forum that took place earlier this year. Here’s what we learned from the workshop this summer:
1. Fees are important
Fees on the administration of endowments are typically a component of the IRF structure, with an overall purpose to offset some or all the expenses to fundraise and manage the endowment. So, it is no wonder that much of the conversation focused on how institutions are thinking about their administrative fees: are the fees sufficient to cover requisite expenses? Are they in line with peers? How are they calculated, and should they be calculated differently? How are these decisions made and communicated? These are key questions that were discussed at the convening.
2. Fees vary across institutions
There is not a uniform standard for how fees are set. According to data from 143 IRFs with $196.7 billion in combined assets under management (AUM) surveyed in the FY2023 NACUBO-Commonfund Study of Endowments (NCSE), the average fee charged to the endowment is 1.29 percent and the median is 1.25 percent, with fees ranging from 30 to 300 basis points, as highlighted in the table below. Anecdotally during the convening, we learned that some institutions with different models do not charge any fees, and some IRF staff are paid, for example, from their respective college/university or state budget.
3. Fees vary by endowment size
The 2023 NCSE also reported that mid-sized institutions, those with endowments of $251-500 million, have the highest fees on average of 1.57 percent, compared with 1.25 percent at the smallest institutions, and 1.08 percent at the largest. Participants in the convening shared that major events such as a transformational gift can prompt changes to fee structuring, in other words, fees may change alongside changes to the endowment size or business model.
4. Nearly one quarter charge a one-time fee on gifts to the endowment
Twenty-four percent of the 143 IRF respondents to the NCSE said they charge a one-time fee on gifts to the endowment. The median one-time fee rate was reported as 5 percent. During the convening, some practitioners shared that the one-time fee is often used to support the salaries of fundraising staff.
While these four topics are the key points brought to light in our first Commonfund Convenes discussion with IRFs, we are actively diving deeper into admin fees to better understand the most pressing questions on this topic.
Click here to request a copy of the 2023 NACUBO Commonfund Study of Endowments.
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