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Despite Wariness, Outsourcing Pays Off for Universities

Indianapolis — Colleges have moved far beyond hiring private companies just to run their dining services or manage the campus bookstore. In June 2012, for example, Ohio State University signed a $483-million deal to lease its parking facilities to an Australian company for 50 years.

Although there was an outcry from some faculty members, the money added about 20 percent to the value of Ohio State’s endowment, said Michael Papadakis, the university’s vice president for financial services. Mr. Papadakis spoke on Sunday in a session here at the annual meeting of the National Association of College and University Business Officers. With the extra cash, the university set aside more than $150-million to improve its environmental sustainability and $83-million for student scholarships.

Ohio State is one of the latest examples of colleges looking beyond traditional revenue sources as uncertainty continues about the future of state and federal dollars. And while government money is hard to come by, there is more than $250-billion in private dollars to be invested, said Charlene Butterfield Janey, director in the public-finance group at the Standard & Poor’s bond-ratings agency.

The University of South Florida earns $100-million annually through agreements with companies that manage its sports arenas and many other auxiliary arrangements, said Fell Stubbs, university treasurer.

North Carolina State University’s endowment, which is being managed by an outside nonprofit company, is earning more in the market than are endowments at most universities, said Mary Peloquin-Dodd, treasurer and associate vice chancellor for finance and business at the university.

But outsourcing also brought some risks at North Carolina State. The company it hired was at its nearby rival, the University of North Carolina. The move made some at the institution uncomfortable because the university was giving up control of its investments to an institution that had different goals and a more conservative investment strategy, Ms. Peloquin-Dodd said.

But so far, the arrangement has worked well, she added. Returns on N.C. State’s endowment suffered less during the recession and have performed better than most universities’ endowments in recent years.

Update (7/15/2013, 4:35 p.m.): This article originally stated that the University of South Florida earned “many millions” from outsourcing its sports arenas and other auxiliary contracts. That has been updated to a more exact amount: $100-million annually.

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