HSBCMaintaining financial sustainability in the face of uncertainty

Maintaining financial sustainability in the face of uncertainty

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A clearer approach to investment is key for universities to manage the economic challenges ahead

Universities must strive to be more open and transparent about their investment strategies if they are to weather uncertain financial landscapes ahead, experts have agreed.

At a panel event for THE Live 2019, financial advisers from the university and private sectors gathered to discuss the challenges and barriers to investment facing higher education. 

Ian Robinson, director of public sector and education at HSBC, said that it was clear that the reputation of universities had been “tarnished” over the past couple of years when it came to financial sustainability.

Negative headlines concerning a UK university pensions crisis paired with high levels of borrowing had placed the sector under increased public scrutiny, he added, but advised institution leaders: “If you are clear in your strategy, in what you are trying to achieve and how you are trying to achieve it, that has a really big impact on the financing that you can access.” 

Andrew Connolly, chief financial officer for the University of Exeter, defended university senior managers as being “brilliant at managing that additionality of growth” that had been vital for the sector amid tightened budgets and pressure caused by “funding of larger pensions, fast-payment mortgages and taxes”. 

“But the future…is going to require a different type of approach,” he added. “Perhaps we have been complacent: we have seen ourselves as these forever-organisations and we haven't really had to be held to account…maybe that is partly to blame for the situation we find ourselves in now.”

The introduction of the Office for Students meant government leaders would be “much more challenging of what we are doing and our strategies” going forward, Mr Connolly warned, meaning “managing our core businesses and making sure those are efficient and aligned to delivering institutional strategies…is going to require a different creed of manager”.

But while greater accountability and tightened budgets may tempt some university leaders to put off any major spending, the panellists came to a consensus that this would be a mistake. Sarah Randall-Paley, director of finance at Lancaster University, explained: “It’s easy to go into times of uncertainty by not taking any decisions, but that in itself is a decision because you’re not investing.” To this end, she asked audience members, “Can you afford to not invest?” 

External political factors meant universities such as Lancaster were in fierce competition to attract world-class talent, she continued, which made keeping on top of repairs and refurbishments – ensuring state-of-the-art equipment was available in labs, for example – was more crucial than ever. “There is an argument that by not investing in these things you are putting yourself at risk,” she suggested.

Universities were also advised to think outside the box when it came to making investments that were both financially and environmentally sustainable. “One of our best investments has been in a wind turbine, which generates a healthy proportion of the electricity the university requires,” Ms Randall-Paley said.

Mr Robinson referenced Macquarie University in Australia, which in 2010 became the first HE institution worldwide to secure a “green bond” fixed-investment worth A$250 million (£130 million) for environmental projects. HSBC was a joint bookrunner on the bond issue

When it came to making a good return on investments, the panellists stressed that UK universities were in a difficult position, particularly because philanthropy is not as strong a culture as in competitor economies, such as the US. 

“UK universities are fundamentally undercapitalised,” said Mr Connolly. “We can only invest in long-term facilities either through additional income generation – which is tough – or through borrowing.”

Asked how universities could embrace entrepreneurialism to mitigate some of the debt they had accrued through borrowing, Mr Robinson said that from an industry perspective, universities were becoming “a lot smarter” when it came to “leveraging commercial aspects of their research” – an increasingly important aspect in keeping with the government’s industrial strategy targets.

“My advice is to ask yourselves, are you a university or are you a business? And think how you can leverage both sides of that,” he concluded.

Brought to you in conjunction with HSBC. Find out more about HSBC’s education team.

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