Investors Backed by Publishing Giant Team Up With Calif. University to Start a Bilingual College

January 17, 2012

A $100-million investment fund backed by the German publishing and media giant Bertelsmann and the endowment for two Texas public university systems is jumping into higher education with two ventures aimed key markets.

One is a new bilingual college aimed at Hispanic students, in partnership with an affiliate of Chapman University. The other is a new London-based distance-education company that will assist European universities in creating, marketing, and managing online courses and degree programs.

For the yet-to-be-named Hispanic-serving college, the new fund, called University Ventures, will form a partnership with Brandman University, an 11,000-student nonprofit institution now known for serving working adult students at its 25 campuses in California (plus one in Washington State) through online and face-to-face courses. Once known as Chapman University College, it was separately accredited from Chapman three years ago and renamed for a benefactor, the Brandman Foundation, in April.

Gary Brahm, Brandman's chancellor, said his institution has a good record in serving and graduating Hispanic students, who make up more than a quarter of Brandman's enrollment. (It claims a six-year graduation rate for students, all of whom now enter with at least 12 credits, of 68 percent.)

The new partnership with University Ventures presents a chance "to do something very significant in higher education and to do something very significant in California," he said in an interview on Monday.

The program will be aimed at the many students from Spanish-speaking homes who have learned enough English to graduate from high school but either are too intimidated or too inadequately prepared to get through traditional college programs taught fully in English. "This has the opportunity to significantly improve their success," he said.

Together, University Ventures and Brandman will create a new for-profit company, Immersion Educational Services, which will adapt the curricula and also market the courses. Mr. Brahm would not say how much Brandman was investing but noted that expansion requires capital and that for Brandman, that "would be hard to fund out of existing university resources."

David Figuli, a University Ventures partner, said the fund expects to make about six investments altogether, with none likely to exceed $15-million. University Ventures has already bought a minority stake in the University of Nicosia, in Cyprus. Neither the fund nor Bertelsmann made that deal public at the time it was completed, in April.

Among traditional universities in Europe, distance education still "is pretty much an unknown," said Mr. Figuli, but with many of those institutions facing their own financial pressures, he said he expects interest to grow.

The new distance-education company announced on Tuesday, Higher Education Online, has already signed deals to provide distance-education services for programs at two British universities that Mr. Figuli declined to name.

Bertelsmann's $50-million investment in the fund is believed to be its biggest stake in higher education, where rivals like Pearson, which owns a distance-education company and other properties, have already established a bigger presence.

Mr. Figuli, who has worked as general counsel to two public-university systems and more recently as a lawyer for deals involving the sale of nonprofit colleges to companies like Laureate Education and Bridgepoint Education, said the focus for University Ventures is to back "innovations from within the academy."

Yet the idea for an adult-focused bilingual program came from the investment fund. Mr. Figuli said he and colleagues consulted with officials at a regional accreditor, the Western Association of Schools and Colleges, about which colleges would be suitable partners, and Brandman was among those named.

Some private-equity investors in higher education have become known for putting fast growth and quick profits ahead of quality. And over the past few years, at least two high-profit partnerships between nonprofit colleges and for-profit investors—one involving the New York Institute of Technology and the other involving the National Labor College—have come apart over conflicting profit expectation and cultures.

Mr. Brahm said that he and others at Brandman "were very mindful of these kinds of issues" and that Brandman had made sure it would have full control over admissions and academics.

Mr. Figuli said the fund's backers, which also include the University of Texas Investment Management Company, the body commonly known as Utimco that manages the endowment for the University of Texas and Texas A&M University systems, weren't investing for a quick flip. "We sought investors that value the traditions of American higher education," he said.