Oxbridge dominates in hunt for new benefactor income

When US private equity billionaire Stephen Schwarzman took a stroll around Oxford while contemplating his record £150m gift to the university this week, he said he was struck by how its college buildings featured the crests of past benefactors.

That reflects Oxford’s reliance since its foundation a millennium ago on donations of land and cash — gifts which have become important once again for the UK higher education sector as competition increases in the global market for teaching and research.

The £150m donation by the Blackstone co-founder, a leading philanthropist in education, will help pay for a new hub that will bring together Oxford’s humanities faculties in one place for the first time, plus an institute focused on artificial intelligence.

“I’m completely convinced [philanthropy] is a requirement if we are to compete globally,” said Louise Richardson, Oxford’s vice-chancellor. “We’re facing some quite serious financial headwinds and it’s imperative that we are much more creative. We have to explore all means of generating revenue.”

Her comments highlight not just the rising financial pressures on British universities and their intensifying efforts to generate new income, but also the special place Oxford and Cambridge have in the sector compared to most of their more recently established peers.

Across higher education, government funding through grants and then loans to cover students’ tuition fees provided significant income during the second half of the last century. That support expanded as the share of English school leavers pursuing university places rose towards 50 per cent of the population in the past few years.

A growing influx of international students — who are charged higher tuition fees — added further to revenues and prompted the creation of new higher education institutions and substantial investment in modern buildings.

But in the past year, there have been growing concerns about the sector’s financial health.

Brexit has provoked worries about whether the UK will become a less attractive place for study by overseas students, as well as reduced research funding from the EU’s programmes.

Last month a government-commissioned review by Philip Augar, a businessman, called for a reduction in tuition fees for domestic students.

There are also concerns about rising pensions costs because of a large gap between assets and liabilities in the £63bn Universities Superannuation Scheme, which involves many UK institutions.

“Across the sector, the creaking is quite loud,” said Ian Koxvold, head of education strategy at PwC, the accounting and consulting firm, who estimated about 50 institutions are currently in deficit.

“The problem is not demographics but universities creating extra capacity and trying to fill it. Some [of the more recently established institutions] could become non-viable very quickly.”

He stressed most institutions should be able to survive if they planned adequately for a more difficult financial environment.

Mr Koxvold said for the UK’s elite universities, the pressures are far less severe. Since the lifting of a government cap on student numbers in 2014, many of the higher-rated institutions have increased admissions to generate extra revenues. That is further squeezing less prestigious universities.

Oxford, like Cambridge, has particular advantages. Both have a distinctive structure of largely autonomous small-scale colleges, which benefit from a tradition of donations by alumni and benefactors.

Oxford and its colleges secured £157m in donations last year, and the university has substantial income from activities such as publishing and exam-setting, and endowment funds.

Total income of £2.2bn in 2018 for Oxford included £850m from publishing, £579m from research grants, £333m from tuition and £308m from investments. Lower-rated universities are far more reliant on tuition income.

Oxford is also tapping some relatively new sources of funds, including the commercialisation of intellectual property and the issuance of debt: the university last year launched a £750m, 100-year bond, which was significantly oversubscribed by investors.

Other universities are stepping up their pursuit of donations. Anton Muscatelli, vice-chancellor at Glasgow university, said in April that while “the lion’s share” of donations went to Oxford and Cambridge, an increase in total gifts to £1bn across the top 100 universities last year “gives hope to vice-chancellors that investing in development & alumni offices will pay dividends, but we have to be prepared to commit for the long haul”.

The UK’s elite universities increasingly compare themselves to the world’s leading institutions, which are dominated by those in the US.

The latest QS world university rankings, based on academic standing, research quality and employability of students, places MIT, Stanford and Harvard at the top, with Oxford, Cambridge, University College London and Imperial just behind.

But the culture of donations is far less strong in the UK compared to the US, where gifts by alumni — some to university endowment funds — have long been cultivated through reunions, open days and sports teams.

“Our US competitors’ endowments are many times more,” said Professor Richardson. “We still don’t have a culture of philanthropy on a par with the US.”