The Carolina way

The well-heeled need not be Tar Heels to attract attention of UNC fundraisers.

By David Mildenberg

Thomas Marsico didn’t go to Carolina, but he’s the poster child for the future of financing the nation’s oldest public university. As UNC Chapel Hill prepares a major fundraising campaign — maybe as much as $4 billion — it’s eyeing 1 percenters such as Marsico, whose Denver-based mutual-fund company manages $16.6 billion. His donations to the school date back a decade, but he kept a low profile until March, when his name went on a nine-story research building, the biggest on campus. Tar Heel taxpayers picked up $243 million of the tab for construction, plus a $50 million annual outlay to study cancer. Both had been championed by Marc Basnight, the longtime state Senate leader and staunch UNC supporter. Now battling Lou Gehrig’s disease, the man who once was the state’s most powerful politician watched the dedication ceremony from his home in Manteo. But future students and researchers will file through Marsico — not Basnight — Hall, a credit to the nearly $40 million provided by the Coloradan known as one of the best stock pickers of his generation.

Raising money from the nation’s wealthiest isn’t as ingrained in Carolina’s culture as it is at elite private universities and some public ones, but that’s about to change. To remain competitive with other state-supported schools ranked among the nation’s best, UNC officials say they need more money from private sources. Donors, from the Marsicos to the $25 givers, contributed about 14% of revenue over the past six years. “We’re still raising $250 [million] to $300 million a year, but the purpose of campaigns is to raise the bar, and we need to be raising $350 million to $400 million a year,” says Roger Perry, former chairman of the board of trustees and a Chapel Hill developer. “We’ve been staying steady, but we are getting ready to rev it up whenever the chancellor says.” A goal and deadline for the campaign hasn’t been set, though David Routh, the chief fundraiser, envisions an eight-year campaign, including a two-year “silent phase,” when a quarter of the goal is typically pledged.  

Revving the fundraising machine comes at what might be one of the best — and worst — times for the school. A soaring stock market has fattened donors’ brokerage accounts. Carolina attracted $778 million in research money last year, 71% of it from the federal government. It ranked seventh among public universities receiving National Institutes of Health funding for medical research. Government research grants make up about 30% of total revenue, up from 25% in 2008. It’s harder to get in, with almost 31,000 applicants seeking about 4,000 freshman slots last year. With many of the nation’s premier private colleges costing $60,000 or more annually, Carolina’s overall price of $23,000 for in-state students and $46,000 for out-of-staters — compared with $27,400 and $56,000 at the University of Virginia — is a deal for some parents.

But it’s not easy to ask for a check with the scent of scandal wafting over the university. Messes in the athletics program and the Department of African, African American and Diaspora Studies — and in the development office — keep embarrassing the school. At least eight senior officials and coaches were fired or resigned over the last two years. Administrators failed to monitor programs that during the last decade offered more than 50 phony classes, many filled with scholarship athletes. The controversies prompted the departure last year of Holden Thorp, a chemistry professor who had been chancellor since 2008. While the no-show-classes controversy mostly involved football players, Carolina’s famed basketball program drew the spotlight in June when former star Rashad McCants claimed coach Roy Williams knew he took fake classes, skipped regular ones and relied on tutors to write his term papers. Williams, who was inducted into the national Basketball Hall of Fame in 2007, responded in a statement, “In no way did I know about or do anything close to what he says.”

The controversy has hampered fundraising, says Nelson Schwab III, another former board of trustees chairman and a Charlotte private-equity investor. Contributions remain “pretty darn impressive, but I think there was no doubt it caused questions to be asked. It caused confusion on a number of different scores. It’s bound to have hurt.”

Donations for athletics were $23.6 million in 2013, versus an average $32 million for the previous five years, about 10% of the money collected by the university. One reason is that The Educational Foundation Inc. — Carolina’s athletics fundraising group, better known as the Rams Club — didn’t have a major capital drive, says John Montgomery, the group’s executive director. In recent years, those projects included raising money for the new classroom and weight-training building next to the football stadium, which received $7.5 million from Charles Loudermilk, founder of Atlanta-based Aaron’s Inc. furniture- and electronics-rental business, and $3 million from Raleigh’s John William Pope Foundation.

Carolina’s lofty national reputation — it rates fifth among state-supported schools in this year’s U.S. News & World Report ranking — isn’t translating into more money from state lawmakers dealing with rising costs of K-12 schools, transportation and Medicaid. After years of growing faster than inflation, spending on higher education has plateaued in North Carolina and many other places. The state provided 18% of Carolina’s total revenue in 2013, down from 27% six years ago. Gov. Pat McCrory, who favors further cuts in the 16-campus UNC system, wants the Chapel Hill flagship to bear more than 20% of the reductions. Lawmakers tired of paying what they consider a high price for Carolina can point to the University of Virginia, which gets less than 6% of its revenue from the state. Before the economic downturn, states increased appropriations every year, “often blindly without knowing whether they needed to,” says Rita Kirshstein, director of Delta Cost Project, a Washington D.C.-based group that studies university finances. “But even post-recession, most states don’t have the money.”

Boosting tuition to cover the shortage seems an unlikely solution, at least in this state. UNC has balanced its ambition to be among the most prestigious public universities with a goal of remaining within reach of talented students from families of limited means. Tuition accounts for about 12% of revenue at UNC, compared with 19% at UVA, and the cost of attending is among the lowest of U.S. public universities, Kirshstein says. “We don’t think Virginia is the best model,” says Steve Lerner, chairman of the board of trustees’ finance committee and founder of Chapel Hill-based Blue Hill Group. One reason is the North Carolina constitution, which requires the General Assembly to provide “higher education, as far as practicable, be extended to the people of the State free of expense.” It’s a concept even many of the state’s wealthiest people buy into. The UNC system’s official portrait of C.D. Spangler Jr., the Charlotte billionaire investor who was its president from 1986 to 1997, shows a laptop’s screen displaying that wording from the constitution.

During stump speeches in her first year as chancellor, Carol Folt emphasized that the university is committed to the Carolina Covenant, launched in 2003 to assure that students from low-income families can graduate debt-free. She’s quick to note that some large public schools have dropped similar pledges.

 

As she tries to grow a state university’s reputation globally, one of Folt’s biggest tasks will be as a rainmaker, bringing home the money needed to nurture such aspirations. A native of Akron, Ohio, she attended public universities in California, then spent 30 years at Dartmouth College, where she taught biology before becoming an administrator in 2001. It’s the smallest Ivy League school, with about 6,300 students. Carolina has more than 29,000. But the New Hampshire university’s endowment totaled $3.7 billion as of June 30, 2013, 60% more than Carolina’s $2.3 billion. (Both are a fraction of the University of Texas and Texas A&M University systems’ shared $32 billion endowment, fueled by oil- and gas-tax receipts on public land.) One of her first hires was Routh, who graduated from Carolina in 1982. Mickey McLean, a journalist who was his classmate at Page High School in Greensboro, remembers him as “a born leader who was miles ahead of most of us in maturity.”

Routh replaced an interim development director appointed after Matt Kupec, who had been in charge of fundraising since 1995, resigned in September 2012. The former Carolina quarterback departed amid media reports that he had taken more than 20 trips with Tamara Hansbrough, mother of former Tar Heel basketball star Tyler Hansbrough and a university fundraiser, and had charged personal expenses to the school. Kupec had told campus groups that the goal for the next major campaign could be $4 billion, topping the $3.2 billion drive rival Duke University launched in 2012 and matching the University of Michigan’s target, which was a record for public universities until the University of California, Los Angeles, announced in May that it plans to raise $4.2 billion by 2019. Stanford University owns bragging rights for private schools, with $6.2 billion, though Harvard is gunning for $6.5 billion by 2018. Carolina’s last long-range campaign, which ended in 2008, raised $2.4 billion.

Routh is no novice at telling rich people what they should do with their money. He worked for Charlotte-based Bank of America Corp.’s U.S. Trust wealth-management division in Greensboro and Raleigh for more than a decade, interrupted by a three-year stint as director of planned giving during UNC’s last capital campaign. At U.S. Trust, he advised high-net-worth individuals on how to preserve wealth through generations, including estate and tax matters. Part of that, of course, is how to deal with gifts. He’s being paid $395,000 a year at Carolina, about $45,000 more than Kupec’s annual salary. With a potential bonus of almost $100,000, his compensation may approximate Folt’s, who gets $520,000 a year. As vice chancellor for university development, he oversees 240 fundraising employees, including 150 who work for individual schools and departments. “David’s gift is his ability to listen to people and understand what excites them and what might cause them to invest in Carolina’s future,” says Peter Hans, chairman of the UNC system Board of Governors. “It’s increasingly necessary to increase private giving. Chapel Hill does it well, but certainly it’s a quicker way to get there when you have a billionaire giving a big gift.”

Other major national universities have reported bigger rebounds in private gifts than Carolina has since 2009, probably because they haven’t experienced as much turnover at the top, says Susan Ross, whose Durham consultancy is helping the university’s Eshelman School of Pharmacy and other departments devise plans for the upcoming campaign. “UNC has postponed their campaign as long as they should have, but now David has been brought in to do it,” says Ross, a fundraiser at Duke for more than 25 years. “It hasn’t really been a lost opportunity because fundraising has gone on during those two years. But some lead donors know that a campaign is coming around the corner, so they may not want to have made their biggest lifetime gift yet.”

To prime the pump, Folt has hosted groups of about 75 people at events in Atlanta, London, Palo Alto, Calif., Palm Beach, Fla., and New York City. She arrived late for a 6:30 p.m. event at Atlanta’s High Museum in February, fresh from a meeting at the White House with other university presidents. “She absolutely impressed everyone with how much she knew about the university, her passion and her energy level,” says Michael Egan, a lawyer who attended the gathering. Folt emphasized her vision for UNC being “the great global public research university,” coupled with her commitment to the Carolina Covenant for students whose families earn less than two times the federal poverty line.

Day-to-day collegiate fundraising involves regular lunches and dinners with potential donors, many of whom are courted for years before a big gift is secured. Carolina fundraisers aren’t paid a commission, and their salaries range from $70,000 to $150,000 a year, Routh says. They spend a lot of time at nice restaurants and country clubs. ”These are fun, excellent jobs, and they pay well enough that you don’t have to leave them, even if you won’t get rich,” Ross says. The goal is to match donors’ interests and passions for improving the world with ideas bubbling up from Carolina’s professors and researchers.

That’s what happened with Marsico, who took up the fight against cystic fibrosis after the disease struck the child of one of his secretaries, says Maclyn Clouse, a finance professor at the University of Denver who taught him while he was earning his MBA in the 1970s. Marsico declined requests for an interview, and Carolina won’t provide details of its relationship with him, university spokesman Scott Ragland says. Through he never attended Carolina, his two sons are UNC graduates, and his ties to the state are tighter than that. He sold Marsico Capital Management LLC to BofA for $1.1 billion in 1999 and 2001, then led the expansion of the bank’s mutual-fund business. Though its assets under management soared, he grew tired of working for a big corporation and bought back his company in 2007 — paying $2.65 billion, according to Pensions & Investments magazine.

Marsico connected with Dr. Richard Boucher, who has researched cystic fibrosis and other pulmonary diseases at Carolina since 1977. In 2002, Marsico invested an undisclosed sum in Parion Sciences Inc., a Durham-based drug researcher Boucher had co-founded. Between then and 2005, privately held Parion raised more than $22 million, according to U.S. Securities and Exchange Commission filings. The company continues to test cystic fibrosis treatments. In his day job, Boucher leads the university’s CF/Pulmonary Research and Treatment Center. Marsico, who Clouse says wanted to be a doctor but failed to get into medical school, also has given more than $10 million for undergraduate programs at the private University of Denver.

 

Duke, Dartmouth and many other private universities stress the importance of giving the day students show up on campus and follow up over ensuing decades, creating a tradition of support, Routh says. “What you hear from the minute you arrive is that you are able to be here because of our extraordinary benefactors.” That hasn’t always been the Carolina way. “The publics are getting there, but state support was so strong for so long, and they didn’t start serious fundraising efforts until the 1960s in many cases. It’s not the deep culture that there is in the private colleges.”

Other than receiving regular reports from the development office, “fundraising has never been discussed in my three years on the board,” Lerner says. The UNC Board of Governors, which also oversees the system’s other campuses, appoints eight of the 12 members, with the governor of the state picking the other four. “It’s obviously not a pay-to-play board,” Lerner says, comparing it with Duke University’s 36-member one, which includes billionaires and CEOs of large U.S. companies. “There’s clearly some expectation that serving on Duke’s board involves giving or raising money.”

“Carolina has always been underdeveloped,” says Tom Drew, a Durham consultant who has helped the University of New Mexico and other colleges raise money. “Carolina’s alumni base is wealthier and larger than Duke’s — and has been for at least 30 years.” That’s saying something, given that the Durham school’s list of $50 million-plus donors includes New York-based Carlyle Group co-founder David Rubenstein, Los Angeles-based Oaktree Capital Management LP co-founder Bruce Karsh and Boston medical-device developer Peter Nicholas, who has given $130 million. Duke has raised more than $1.8 billion over the past five years, compared with about $1.4 billion at Carolina and $494 million at N.C. State University, according to the Council for Aid to Education, a New York-based nonprofit that tracks fundraising.

Carolina’s biggest givers the past decade include Dennis Gillings, a $50 million donor who taught biostatistics there 15 years before starting Durham-based Quintiles Inc., and Fred Eshelman, an alum and founder of Wilmington-based Pharmaceutical Product Development Inc., who has given more than $35 million. (Rubenstein’s Carlyle Group and San Francisco-based Hellman & Friedman LLC bought PPD in 2011 for $3.9 billion.) The School of Global Public Health is named after Gillings, while Eshelman’s name adorns the School of Pharmacy. Gillings and Eshelman declined interview requests, and UNC wouldn’t provide a list of its largest donors in recent years. But Routh and Perry expect more superwealthy alumni and friends will follow the two men’s example, after a bit more prodding from Carolina.

“We’ve got a handful of $10 million to $50 million gifts, but we need to do a significantly better job,” Routh says. “Whether it’s $1 million going to $5 million or $5 million to $10 million or $50 million to $100 million, we need all of that to happen.” He adds: “It’s not easy, and it’s not a layup. But if you create big enough ideas and engage people deeply enough that they want to invest a high eight-figure or nine-figure gift, institutions like ours are getting those kinds of gifts.”

To focus on the richest players, UNC is starting its first team of deans and development staffers for so-called “principal gifts.” Its Kenan-Flagler Business School has a development officer devoted to New York City, and the university may add another to raise money for other schools. The lode of potential $10 million givers includes a few hundred wealthy business-school alumni, particularly several dozen “Tiger Cubs” who worked for Salisbury native Julian Robertson’s New York-based Tiger Management Corp., one of the largest U.S. hedge funds in the 1980s and ‘90s. Many have a net worth topping $100 million, Drew says. Robertson, who graduated from Carolina in 1955, gave $12 million each to Carolina and Duke in 2000 to start the Robertson Scholars Leadership Program, which covers the cost for about 36 students a year.

For all the effort universities expend to raise money, prospects for those $10 million-plus paydays might rest as much on friendly persuasion and fortunate timing. Consider the story of Mary Cain and her late husband, Gordon, who made a fortune in the chemical industry in Houston. To avoid Texas’ sweltering heat, they spent more than 30 summers in the North Carolina mountains. At their home in Linville, they learned about Carolina’s Morehead Scholars Program from neighbors Alan and Mary Anne Dickson, whose Charlotte family controlled Harris-Teeter Supermarkets Inc. until its sale this year to Cincinnati-based Kroger Co. Dickson, who died in 2012, was a graduate of N.C. State and Harvard Business School, but he was a trustee of the Morehead program for 43 years.

Established in 1945 — it touts itself as “the oldest, most prestigious merit scholarship program in the United States” — it was endowed by John Motley Morehead III, one of the founders of Union Carbide Corp. and an alumnus whose family name is on the planetarium and bell tower at Chapel Hill. Patterned on the Rhodes Scholarship, which sends Americans to England to study at Oxford University, the Morehead Scholarship paid full costs for students who might otherwise wind up in Ivy League schools to go to Carolina. Alumni include author Taylor Branch, banking executive Sallie Krawcheck and Francis Collins, who directs the National Institutes of Health. Gordon Cain considered starting a program modeled on the Morehead but concluded it would take decades to make an impact, says Jim Weaver, Mary Cain’s son from a previous marriage. An engineering graduate of Louisiana State University, Cain “knew that LSU was a good state school but not the caliber of UNC.”

After her husband’s death in 2002, Mary Cain wanted to make one important gift from his estate, which totaled more than $125 million. “Friends tend to give to friends,” Weaver says. “When they keep working on you, she eventually said, 'What the hell.’” In 2007, she gave $100 million for the renamed Morehead-Cain Foundation. “My mother went to college in Wisconsin, she married a guy from Louisiana, and they summered in North Carolina. She spent five months of the year surrounded by Tar Heels, and she decided this is as good as any of the top five flagship public universities.”