Almost three years after the law on endowment funds was passed, about 50 such funds have been created in Russia, with roughly 70 percent of them totaling 2.7 billion rubles ($90 million), according to an estimate by the Donor’s Forum Association, which runs the Development of Endowments in Russia program.
Only the country’s strongest and largest organizations are able to establish an endowment fund, and in the education sector, more than half of the funds are designed to support leading universities, said Maria Chertok, director of the Charities Aid Foundation Russia.
But even in large state universities, endowments are still small compared with their Western counterparts. The biggest endowment fund in Russia, that of the Moscow State Institute of International Relations, or MGIMO, with a value of 524 million rubles ($17.4 million), was set up predominantly by three graduates, Vladimir Potanin, Alisher Usmanov and Patokh Shodiyev, who each contributed 125 million rubles. The Finance Academy’s fund stands at 200 million rubles, donated by Mikhail Prokhorov and several other well-known and wealthy alumni. Meanwhile major Russian businessmen have pledged $183 million to Skolkovo, not all of which has yet actually materialized, although the school declined to confirm exactly how much they have received. Consequently, Skolkovo was forced to take a loan fr om Sberbank to complete construction work at its new campus. “In Russia, first you need to learn to look for funds for ongoing activities, and in this context an endowment fund — which we also have — is just one of many tools allowing us to create a stable long-term financial base,” said Yelena Chernyshkova, director of strategic projects at Skolkovo.
Strategic Plans
If a university is making strategic plans, it will not get by without a long-term funding source, said Sergei Guriev, rector at the New Economic School, or NES. In the future, income from endowment funds should account for 20 percent of the school’s budget. In the United States this figure is on average 30 percent to 40 percent, according to the U.S. National Association of College and University Business Officers, or Nacubo. So far the NES has collected 500 million rubles, but this is not enough. In Russia it is still easier to collect donations for current ongoing activities, rather than contributions to an endowment fund, Guriev said. In the 2008-09 academic year, aid for current projects made up 30 percent of the school’s budget, or 176.6 million rubles. A further 28 percent came from tuition fees, including student loans. The school earned 25 percent from research projects and received 17 percent from foreign funds, according to its annual report.
Other universities have also been more successful in setting up funds for helping current development. Income at the Graduate School of Management of St. Petersburg State University from managing its 75 million ruble endowment fund provided 3 percent of the school’s 400 million ruble budget for 2010, wh ereas money from companies’ and individuals’ donations made up 21 percent of the budget. Tuition fees contributed 59 percent, and 17 percent was from state financing of the St. Petersburg State University and research grants from the federal budget.
The size of endowments is not helping facilitate a respectable breakthrough in science in Russia, nor the creation of innovation towns and centers of knowledge. While running campaigns to raise funds for costly projects is not easy in the West, these countries have medium-sized donors who understand the importance of endowments and are prepared to contribute. In Russia this has long been the domain of mostly the superrich, said Chertok of the Charities Aid Foundation. “In general, donations to the whole education market, including all its segments, even primary education, come to about $50 million a year,” said Chernyshkova of Skolkovo. “Russia has only a few companies that might be willing to even discuss a contribution of $10 million.”
Anatoly Milyukov, CEO of Gazprombank’s asset management group, which controls 40 percent of all endowment fund money in Russia, said the small amount of targeted capital funds in Russia can be explained, firstly, by the law on endowments being only three years old, and secondly, because these have been three years when the global financial crisis has hit the economy, reducing many business opportunities worldwide. As soon as foundations begin fundraising in an economy that is on the way up and show businesses how effectively and on what their money will be spent, we will be surprised at how interested everyone will be in this topic, Milyukov said.
Back to the Alma Mater
The available funds are certainly insufficient, but more can come from students and alumni, said Natalya Kaminarskaya, executive secretary of the Donors Forum. More than half of all the money in Columbia University’s endowment funds is contributions from graduates and students, which is the norm for North American universities, said Frederick Van Sickle, vice president of university development at Columbia.
About 65 percent of the graduates of Columbia University, Tuck School of Business and various other universities donate to their funds each year. A graduate of Harvard Business School, Gazprombank’s Milyukov makes contributions annually to his school’s endowment. “I get sent letters and suggestions to make donations, and this is perceived as a correct reminder of a way to repay your school,” he said. “People there have reached a high level of skill in this subject and have made fundraising an integral part of school policy. There are several dozen people working with alumni on this issue.”
“Donors are much more active if they see that graduates are also ready to contribute,” said Igor Baranov, deputy dean of the Graduate School of Management at St. Petersburg State University. “The most important thing is not even the size of donations, but the fact that many graduates are willing to make a sacrifice, even if it is just a small amount,” he said. In January 2008, alumni promised to donate 15 million rubles to an endowment fund that was set up at that time, most of which has already been paid, although partner companies have transferred much more to the fund, he said.
Currently in Russia, even the best universities have not yet fully formed databases of graduates. While 70,000 people have graduated from the People’s Friendship University, and the institute’s database has details of 34,000 of them, only 2,000 are active contacts, said Vladimir Timoshek, head of alumni at the university. At MGIMO 9,500 of the total 35,000 people who have studied at the institution are members of its alumni association.
The New Economic School, which has 250 current students, started its first alumni fundraising campaign in the spring, although Guriev said in a warning that when making plans for alumni donations, it is very important not to overdo it on tuition fees. “Graduates need to understand that the school gave them much more than they paid for their education.”
However, it is not worth counting on significant monetization of these efforts, said Sergei Filanovich, dean of the Graduate Management School at the Higher School of Economics. In the United States there is a choice between giving the money to the tax office or a charity, but in Russia taxes have to be paid regardless. So we have either no incentive at all for charitable contributions, or contributions become part of the shadow economy, Filanovich said.
Starting next year, the president has promised to introduce exemptions on income tax for individuals and organizations that provide charitable assistance, said Chertok, which will provide a real impetus for donors from beyond the moneyed “golden hundred.”
With the increasing size of endowment funds, every university in the world that has state financing faces the risk of this source of funding being cut short, said Milyukov. There are two development models of endowment funds: the American and the European. In America, education is mainly in private hands, and endowments, in addition to tuition fees, form the basis of schools’ funding. In Russia, as in Europe, state funding dominates in the education sector. Consequently, endowments could become a great help but not a substitute for budgetary financing, Milyukov predicted.