Private investors eye universities

After months of speculation, the College of Law, the largest legal training and education establishment in Europe, was sold late last month to a private equity firm with no experience in education.

At first sight, this seems a mere footnote to the fees and funding story dominating the United Kingdom’s higher education sector. The College of Law has centres across the UK. But the sale of the college to Montagu Private Equity, for about £200-million, is being seen as a possible model for growing involvement in higher ­education by for-profit companies.

Although legal and education policy experts think it unlikely that private companies will take over traditional universities entirely in the near future—Russian oligarchs will not be getting their hands on Cambridge quite yet—they do foresee some ­university activities soon being financed with private cash.

Robin Middlehurst, co-author of two recent reports on private involvement in higher education, said: “I’m sure that, as public funding goes down, publicly funded institutions will ... look to issue bonds and have some kind of different private financing. It means the beginning of ­something that hasn’t been here up to now.”

Glynne Stanfield, a partner at the law firm Eversheds, which helped to develop the College of Law sale, said it could be used by all UK universities not just as the basis of an outright sale, which he thinks will be rare, but also to allow investors to buy some kind of stake in an institution, with the valuation depending on the profitability of that institution and its brand.

“We are seeing the liberalisation of the UK market and there will no doubt be many innovative structures developed over the next couple of years as the government seeks to reduce taxpayer funding in higher education,” he said.

The College of Law
The College of Law deal divides the college’s training activities from its charitable role of promoting legal education and fair access to the legal profession. It hands to a new company, set up with funds managed by Montagu, all the college’s education and training business, including its brand, contracts with law firms and degree-awarding powers.

A separate Legal Education Foundation, established with the proceeds of the sale, will provide bursaries, scholarships and grants for future law students. These mechanisms appear to avoid many of the difficulties involved in transferring the valuable power to award degrees, which most institutions have earned over years — sometimes centuries—to new organisations and offer for-profit companies a way into the booming higher education market.

This could be especially valuable because the UK’s higher education white paper, which had included measures to make it easier for new providers to award degrees, has been indefinitely delayed.

Although the College of Law is a private institution, it is also a charity and—like many universities—has a royal charter. If this charter has not stood in the way of a sale in the case of the college, it may not be an obstacle to the sale of ordinary universities—or parts of them.

This worries the University and College Union, which is working on a report on private equity in higher education that is due to be released this month. It is pressing the government to introduce safeguards to protect universities’ assets and reputations in the light of growing interest from for-profit companies.

The union wants measures in place to stop institutions from handing over assets acquired through public investment to for-profit firms that can use them to generate dividends.

Government needs to come to the party
“What the College of Law [sale]shows is that charity law isn’t enough,” said the union’s general secretary, Sally Hunt. “The government needs to take urgent action to ensure that public assets and ­investment are protected and any change of ownership should trigger an immediate review of degree-awarding powers.”

The concern is that if it becomes easier for more organisations with diverse business interests to award degrees, the quality of a UK degree could suffer.

The Quality Assurance Agency is seeking discussions with the government’s department for business, innovation and skills. “It is an issue we have raised some concerns about,” said Stephen Jackson, the agency’s director of reviews. “The concern is that new owners might have plans for an entity that might go beyond those originally envisaged when it was given degree-awarding powers.”

In 2006 the College of Law was the first private education provider to be granted the power to award degrees. It has just undertaken the formal review of these powers that takes place every six years. It will, therefore, not have to reapply for another six years.

Four other private providers can now also award degrees, including BPP, a professional training provider co-owned by a private equity company, the Carlyle Group, and Apollo Global, a subsidiary of the United States-based for-profit higher education company Apollo Group.

Gary Attle, head of education at the law firm Mills and Reeve, said increasing competition from large global companies such as Apollo might have prompted the College of Law to explore the sale.

“It probably thought ‘if we have to compete in this market globally, we’d better do something’.”

For now, he said, most mainstream universities had less need of private equity and were less attractive to investors than specialist institutions.

Although the demand has dropped for legal training, it still offers clearer potential for profit than, say, philosophy.

But Attle added that even mainstream universities were thinking differently about how they operated, including separating some of their activities—ones that could attract private money.

Matthew Robb, of a private consultancy in London, gave an example of where this could lead. A university, instead of using its successful business school to subsidise less profitable courses, could sell it off and invest the money.

The case of the College of Law could bring such a scenario a step closer. —

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