There is big money attached to university endowments. But how do they work?

Endowments are the arterial connections that help post-secondary institutions fund the construction of new buildings, new staffing positions and scholarships. 

Often racking up billions in assets, an endowment is a long-term investment as a charitable gift. 

The University of Toronto, established in 1827, has consistently had the largest university endowment fund in the country, sitting at $3.2 billion as of April 2022. The University of British Columbia, McGill and the University of Alberta have also ranked high in Canada for their funds, which are all in the billions. 

Interested donors liaison with the department or board in charge of setting up endowments at the institution, and both parties agree on how the money should be spent.

“This is a charitable gift that you can put your name on,” said Doris Bonora, a lawyer specializing in wills and estates with Dentons.  

“Leave this lasting legacy, even long after you’re gone in the community, so it’s your form of immortality,” Bonora said in an interview with CBC’s Edmonton AM.  

LISTEN | Will and estates lawyer talks about the impact of endowments 

Endowments can operate as a way for alumni and interested donors to give back to a cause they deem important. 

A 2022 report by the C.D. Howe Institute found there is “compelling business reason for universities to align their endowment policies and actions with responsible investing frameworks, including climate change” — namely, a six per cent increase in donations.

With big money comes big scrutiny 

 In September, the U of A’s $1.7 billion in endowment assets came under scrutiny when it was revealed that one such endowment was funded by the family of Yaroslav Hunka, a Ukrainian Second World War veteran who fought for Nazi Germany.

The University of Alberta returned the $30,000 donation. The fund was created in 2019 by Hunka’s family and was made to the university’s Canadian Institute of Ukrainian Studies. The subsequent return called into question what the vetting process is when endowments are created. 

Hunka, 98, was invited to Ottawa on Sept. 22 for Ukrainian President Volodymyr Zelenskyy’s address to Parliament. Hunka was given a standing ovation after being pointed out by then-Speaker Anthony Rota. 

Hunka served in the Waffen-SS Galicia Division, or the SS 14th Waffen Division. This voluntary unit was part of Adolf Hitler’s forces during the Second World War.

Hunka’s acknowledgement by Parliament was seen as an international failure.

The matter was also addressed by Verna Yiu, interim provost and vice-president, on Sept. 27 in a public statement. 

“On behalf of the university, I want to express our commitment to address anti-Semitism in any of its manifestations, including the ways in which the Holocaust continues to resonate in the present,” Yiu said. 

“The university’s core values include a commitment to academic integrity and to inclusivity in its research, teaching, and community-building efforts.” 

In a statement last month, U of A spokesperson Ross Neitz said the university is reviewing its policies around endowments, but declined to discuss its processes, citing the ongoing review into the Hunka donation.

“We are currently reviewing other endowments, and our general naming policies and procedures, including those for endowments, to ensure alignment with our values.”

Neitz said these types of reviews “take time and diligence” and that the university will not be disclosing further details at this time. 

What are endowments?

Many endowments are financial, but some institutions also manage land donations. Endowments are not restricted to post-secondary schools but can include public and private entities. 

Blake Phillips, director of the school of accounting and finance at the University of Waterloo, works with donors interested in starting an endowment fund. 

He said they can be an attractive option for donors interested in preserving their legacy and a means to align their values with an institution. The longevity of endowments also ensures a steady income stream for a chosen cause even after a donor’s death. 

Universities will often stipulate a minimum amount for the creation of an endowment. 

The minimum contribution needed to establish an endowment at the U of A is $50,000, but this number may change over time. A new endowment can also be funded for up to five years by donating $10,000 annually. 

How are they invested? 

Phillips said universities across Canada  usually take a conservative approach to managing the funds. 

“We’re typically investing in money market or bond investments that are very low risk … we’re not investing in high growth equity investments with endowment funds,” Phillips said. 

He noted that most endowments generate investment returns of about three to four per cent, which the institution can spend on what has been agreed upon.

Phillips said the conservative investment strategy is “sort of double-edged” at a time when institutions are also experiencing inflationary challenges.

What is the vetting process? 

CBC News asked multiple Canadian schools how they determine whether to create an endowment.

At Edmonton’s Northern Alberta Institute of Technology (NAIT), all donations are expected to be congruent with the school’s guiding principles, according to spokesperson Nicole Graham.

“The acceptance of donations is informed by and consistent with the Institute’s priorities,” Graham said in a statement. “NAIT can refuse, return or terminate gifts that do not align with the overall vision, strategic direction, mission and values of the institute.”

At the University of Calgary, spokesperson Sean Myers said the faculty or unit administering the program is consulted, and U of C completes a due diligence exercise to ensure the partnership is a good fit.

“All donations, whether endowed or not, also have to align with relevant university policies, guidelines, practices and procedures, and donors must remain at arm’s length from the administration of their gift,” Myers said.  

The University of British Columbia manages all endowments under policies and guidelines approved by the UBC board of governors. At the University of Victoria, its legal team may conduct a reputational review, depending on the size and nature of the gift.  

What are the legal parameters?  

Lawyer Doris Bonora said endowments cannot be created if considered “void for public policy,” which can entail criminal or conditional situations. 

Relevant to the situation with the Hunka family is reputational risk, Bonora said. 

“There’s nothing illegal about the gift that was given by the Hunka family, but for example, a Cancer Society probably doesn’t want to accept a gift from the tobacco industry.”   

This is why charities should have gifting policies. Otherwise, they risk damage to their credibility, Bonora said. 

“There’s lots of people who like to whitewash their reputations by giving to charity. So famous ones are kleptocrats or oligarchs who steal money from their countries and then try and whitewash it either by laundering the money or by whitewashing their reputation.”

What lies at the heart of endowments? 

Phillips said he has noticed a trend away from donors as fewer people seek name recognition.

“To name something, typically, it has to be endowed. You don’t want to have something named and it last for five years, and then it disappears,” Phillips said.

“It’s sort of in keeping with wanting to be impactful now … it’s, do you want to have a legacy from your gift? Or is the focus more on high impact for a shorter period of time?”

READ | University of Alberta 2023 annual investment report