Dec. 1 (Bloomberg) -- Alison Richard, the vice chancellor of Cambridge University, opens the doors that lead from her wood- paneled Dome Room office to the Benefactors' Staircase in the 14th-century Old Schools buildings. She surveys slate plaques that honor Microsoft Corp.'s Bill Gates, Intel Corp.'s Gordon Moore and more than 60 other donors.

As for the bare spaces, ``I'd like to see them covered, of course,'' she says. ``Wall to wall.''

Richard, 57, is on a money mission. To succeed, she'll have to overcome an endowment that lags behind those of Cambridge's Ivy League peers, a decline in government funding and an unwieldy collegiate system colored by British reserve that makes fund- raising a thorny task.

Cambridge, which will celebrate its 800th anniversary in 2009, lost 10.5 million pounds ($18.3 million) in 2004. Richard expects it to post deficits for the next two to three years. Rival Oxford University, which dates to 1096, making it the oldest English-speaking university in the world, would have lost even more than Cambridge if not for the 18.9 million pounds it received from Oxford University Press.

Richard, a British citizen and a Cambridge graduate, got a head start on Oxford in September with a 1 billion pound fundraising drive, the biggest ever by a British university. She intends to drum up money from former students, many of whom work in the City of London financial district. Her goal is to boost the 10 percent share of alumni who donate to about 30 percent, a figure still well behind the 58.6 percent for Princeton University in New Jersey.

`No Habit of Asking'

``In Britain, there is no habit of asking, so you can't be surprised that there isn't a habit of giving,'' says Richard, a former provost of Yale University in New Haven, Connecticut. ``This is something that American universities have worked at over a 30-year period.''

Oxford Vice Chancellor John Hood, 53, is also stepping up fund-raising efforts. In October, he brought in Jon Dellandrea, 56, who helped the University of Toronto raise more than 1 billion Canadian dollars ($857 million), to lead Oxford's development office. At Oxford, only about 5 percent of alumni contribute to their alma mater; the university and its 39 colleges raised 58 million pounds in 2003. In contrast, Harvard University in Cambridge, Massachusetts, took in $555.6 million.

Endowments Lag

``What Oxford and Cambridge are fighting for is whether this little island is going to be able to supply two universities in the top 10 or 12 in the world or be edged out by the spending power of the U.S. universities,'' says David Palfreyman, bursar of New College, Oxford, and director of the Oxford Centre for Higher Education Policy Studies.

U.S. universities are outgunning their British rivals in more ways than one. Cambridge's endowment is 3.1 billion pounds, slightly more than Oxford's 2.7 billion pounds. Harvard's endowment has surged to $25.9 billion, or 14.8 billion pounds -- a fivefold increase from 1990 and more than the gross domestic product of Bulgaria. In the past five years alone, Harvard's pool has soared by $6.7 billion, more than the total endowment of either Cambridge or Oxford.

About two-thirds of Cambridge's endowment is held by its 31 independent colleges, which decide how to invest on their own. The university farms out its central endowment of 747 million pounds to London-based Foreign & Colonial Investment Management Ltd. and other fund managers, which answer to an investment committee. Currently, no one at Cambridge is devoted full-time to scouting out investments.

Chief Investment Officer

Richard plans to change that system. She wants to hire the university's first chief investment officer as Cambridge scraps its investment committee in favor of a new board. One idea is to get the colleges to put slices of their endowments into asset- specific funds, such as private equity.

David Swensen, who helped increase Yale's endowment almost 12-fold to $15.2 billion during the past 20 years in his role as chief investment officer, has advised Cambridge.

Hood is looking at whether similar changes can help Oxford. Like Cambridge, the university and its colleges outsource management to firms such as San Francisco-based Barclays Global Investors, a unit of Barclays Plc, the U.K.'s third-biggest bank. An investment committee oversees Oxford's central endowment of about 726 million pounds while the colleges manage their money independently.

Hood has asked Sir Alan Budd, a former member of the Bank of England's Monetary Policy Committee and the current provost of Queen's College, to figure out how Oxford can boost returns.

Holdup Eliminated

``A fund of our size in America would almost certainly have an investment officer,'' says Budd, sitting on a sofa in the provost's lodge overlooking a leafy quadrangle on Queen's College's campus. Budd says hiring an investment manager is just one option he's considering.

One big holdup to potentially greater returns has been eliminated. Until 2000, U.K. universities' tax-exempt status permitted them to spend only income earned by their endowments, such as dividends. They couldn't spend any capital gains. That limited investment choices to securities with high dividends and prevented contributions to private equity or hedge funds.

As a result, Cambridge's central endowment has been a laggard. Returns averaged 7.2 percent annually in the 10 years through July 31, 2004, compared with a 16.8 percent return for Yale's endowment, minus fees, during the same period. The fund soared in fiscal 2005, when it posted a 20 percent return on the back of a 20 percent run-up in the FTSE 100 Index. Cambridge has just revised its rules to follow a new investment strategy in line with the change in the law.

`World Is Our Oyster'

``Now the world is our oyster,'' says Andrew Reid, Cambridge's finance director, seated in his office, where a bookcase displays Swensen's ``Pioneering Portfolio Management'' (Free Press, 2000) next to ``How to Invest in Hedge Funds'' (Kogan Page, 2004) by Matthew Ridley. ``We can go into hedge funds, private equity and value stocks. It doesn't mean we're going to go for them. We may well have missed the boat.''

For both Oxford and Cambridge, commonly referred to as Oxbridge, making the most of endowments is growing more crucial. U.K. government funding per student has fallen by more than 40 percent in real terms during the past 15 years, according to Cambridge figures.

At Cambridge, it costs 13,500 pounds to educate an undergraduate each year. The university receives 7,500 pounds in state support and student tuition fees, which the government caps at 1,150 pounds. That leaves a 6,000-pound deficit per student, according to university figures. Oxford says the shortfall in government-funded teaching amounts to 27.8 million pounds a year.

`Private Cost'

``There is a private cost to having top-quality international institutions,'' says Hood, a New Zealander who joined Oxford in 2004 as the first vice chancellor in the university's 900-year history to come from outside the ranks of the academics, known as dons. ``The government simply cannot fund the full cost of operating them.''

In 2004, U.K. Prime Minister Tony Blair, against opposition from members of his own party, pushed a bill through parliament that allowed universities to charge as much as 3,000 pounds a year starting in 2006, almost triple what students currently pay. At least 10,000 students marched through London in October 2003 to protest the proposal.

``We've got into this triple-whammy where the taxpayer retreats, you can't put the fees up, but you can't generate the philanthropic tradition fast enough,'' Palfreyman says.

English Reluctance

The English reluctance to ask for money makes it difficult to match the fund-raising prowess of U.S. universities, says Adrian Beecroft, chief investment officer at London-based private equity firm Apax Partners Worldwide LLP.

Beecroft, 58, says he has donated about 1 million pounds to Oxford, where he earned a bachelor of arts in physics in 1968. In 1995, he joined a committee to solicit money for a 3.7 million- pound swimming pool as part of a larger project to develop sports facilities on the site where Sir Roger Bannister ran the first 4- minute mile in 1954.

``I failed totally to raise any external money,'' Beecroft says. ``It's just not a very English thing to do, to go up to your friends and ask them for money. They might be embarrassed, or they might not want to.''

Beecroft and committee members dipped into their own pockets to help fund the project. It was completed with a 976,000-pound gift from Lief Rosenblatt, a 1974 Rhodes Scholar and founder of New York-based Satellite Asset Management LP, according to the Oxford University Gazette. The Rosenblatt pool opened officially in 2004.

Beyond `Old Wealth'

Richard's goal of raising 1 billion pounds for Cambridge will require a change in attitude, says David Walker, 65, co- chair of the university's campaign, who steps down as London- based chairman of Morgan Stanley International at the end of December.

Walker says Cambridge needs to look beyond what he calls ``old wealth'' and tap alumni who have made their fortunes by opening hedge funds or by starting and selling technology companies in the past decade.

``I'm identifying all the people who are partners in these hedge funds who are Cambridge men,'' says Walker, who has donated about 1 million pounds to Queens' College, where he studied economics. ``I'm going to go for them. I don't have any scruples about that.''

Some colleges are already cultivating closer ties to alumni in the City. In October, Bank of England Governor Mervyn King hosted a reception at the bank for 180 graduates of his alma mater, King's College, Cambridge.

Not `an Ask'

In March, Balliol College, Oxford, organized ``Balliol in the City,'' its first-ever cocktail reception for more than 100 alumni in the financial district. Nicholas Prettejohn, Lloyd's of London's then chief executive officer, who graduated in 1978, hosted the event.

``It's a way of engaging them, but it's not an `ask,''' says Andrew Graham, master, or head, of Balliol, who's trying to raise money for endowed history and classics fellowships.

Even with their financial challenges, Cambridge and Oxford haven't lost ground academically to their better-endowed U.S rivals. And they remain a bargain. Harvard charges $28,752 a year for undergraduate tuition; room, board and other items bring the price to $41,675. Yale costs $31,460 in tuition, with room and board making the total $41,000.

In contrast, Oxbridge students currently pay 1,150 pounds, or $2,013, in tuition. The two British universities estimate undergraduate living costs for accommodation, food and books at about 5,700 pounds a year.

`Slip Down the Rankings'

In a 2005 ranking of world universities by the Times Higher Education Supplement, Cambridge is third and Oxford is fourth behind Harvard and Massachusetts Institute of Technology based on a survey of employers and professors, staff-to-student ratios and published work by academic staff.

``If the funding situation is not addressed, you will see them lose relative advantage and slip down the rankings in five to 10 years,'' says Harvey McGrath, 53, chairman of hedge fund company Man Group Plc, who has donated money to fund teaching at his alma mater, St. Catharine's College, Cambridge.

Cambridge and Oxford must improve their financial position to reward and retain top academic talent, Richard says. The median annual salary of a full professor at Cambridge is 53,000 pounds compared with about 87,000 pounds at Harvard and 76,000 pounds at Yale, according to Cambridge figures. At Oxford, starting salaries for lecturers can be as low as 20,000 pounds. Occasionally, housing and meals are subsidized.

``The starting point for a lecturer is less than that for a secretary in London,'' Graham says.

Across the Atlantic

Cambridge has lost some stars to the U.S. Amartya Sen, who won the Nobel Prize for economics in 1998, left as head of Trinity College, Cambridge, in 2004 to return to Harvard, where he'd taught during the 1990s. Keith Wrightson, a professor of early modern British history, joined Yale from Cambridge in 1999.

The U.K. university has gained professors from across the Atlantic as well. Roger Pedersen, a stem cell researcher, quit the University of California, San Francisco, in 2001. Pedersen cited the difficulty of conducting embryo studies in the U.S. for his decision to join Cambridge. Some academics who have gone to the U.S. have found their paychecks doubled.

``My salary at Cambridge after many years was lower than the beginning assistant professor's salary at Yale,'' says Jay Winter, a World War I specialist who quit Cambridge in 2000 after 20 years. ``I got a 100 percent increase when I moved.''

Financial Aid

Bringing in more money is essential to attracting the brightest students, too. Both universities have said they will boost financial aid when fees rise. Oxford, which spent 1 million pounds on student aid in 2005, plans to devote 6.8 million pounds annually as part of a new program that begins in 2006. Cambridge will increase aid to 7 million pounds by 2010, up from 1.5 million pounds in 2005.

Even with more aid, the higher fees will leave many students in debt and may deter others from even applying, says Ben Harrison, 20, the student union coordinator at King's College, Cambridge. He says the cost of his room is projected to rise to 1,400 pounds a term in 2008 from about 1,000 pounds now.

``Costs on students are about to rocket,'' says Harrison, surrounded by oil paintings of former masters in the wood-paneled King's dining hall. ``In four or five years' time, I couldn't afford to come here.''

Harrison says he's worried the university will try to make more money by boosting the number of students from outside the European Union, who pay full fees as high as 11,571 pounds annually for a science degree.

Overseas Students

Undergraduates from outside the EU now make up 8.3 percent of the student body, up from 7.3 percent in 2000. Richard says the university picks its students on the basis of talent, not on how much they pay.

``Are we going to manage the number of overseas students up?'' she says. ``No, not to manage the budget.''

In January, Oxford's Hood suggested to university dons that they increase the number of overseas students -- who pay as much as 11,380 pounds a year for most science courses -- and cut the number of undergraduates.

Hood says no decision has been made on the proposal and any shakeup would be done to create an international mix of students, not to boost income. Currently, about 7 percent of Oxford undergraduates come from outside the EU, up from about 6 percent in 2000.

``There is no financial argument in that; you're talking pennies at the margin on current funding,'' Hood says.

Newton and Darwin

The idea is one of several Hood has floated. He and the dons are debating plans to slim down Oxford's main policy-making body, the council, to 15 members from 26. A majority would come from outside the university. Today, only four members are drawn from outside Oxford.

Famous alumni have kept Oxford and Cambridge rated among the world's most prestigious universities. Cambridge, where Sir Isaac Newton and Charles Darwin studied, has produced 81 Nobel Prize winners, more than any other university. Oxford has turned out prime ministers Blair and Margaret Thatcher and 23 others.

Former U.S. President Bill Clinton studied at Oxford as a Rhodes Scholar from 1968 to 1970. A list of Oxbridge alumni could double for a list of required reading. Sylvia Plath and Salman Rushdie attended Cambridge, while Aldous Huxley and Graham Greene studied at Oxford.

Oxbridge has notched a few funding coups. In 2000, the Bill and Melinda Gates Foundation, with $29 billion in assets, gave Cambridge $210 million to finance the Gates scholarships for graduate students from overseas, the largest ever donation to the university. In 1996, Wafic Said, a Syrian-born multimillionaire, gave Oxford 20 million pounds to set up the Said Business School.

Oxford-Cambridge Rivalry

The rivalry between the two universities, exemplified by the annual Boat Race, a 176-year-old rowing competition on the River Thames in London, stretches to their foundings. In 1209, scholars from Oxford fled to Cambridge after clashes between ``town and gown'' ended with two students being hanged for complicity in the murder of a townswoman.

The scholars fleeing from Oxford set up what later became the University of Cambridge. Wealthy patrons began establishing individual colleges in Cambridge and Oxford in the 13th century to endow fellowships for scholars studying theology.

Cambridge has been lucky enough to receive some money without asking. Peter Beckwith, now chairman of London-based property developer PMB Holdings Ltd., approached his alma mater with a 5 million-pound donation in 1990. The gift partly funded new buildings at the law and biochemistry schools and a building for the Judge Institute of Management Studies.

Beckwith Donation

Since then, Beckwith, 60, has given another 2 million pounds to Emmanuel College, Cambridge, where he finished a law degree in 1966. Beckwith recounts the difficulty in broaching the issue of money in a tale from a decade ago. He remembers when the master of Emmanuel, Lord St. John of Fawsley, gathered 300 friends of the college in the House of Lords. Also there was Peter Gomes, chaplain of Harvard, which was named after John Harvard, its first benefactor and an Emmanuel alumnus.

``Fawsley had gathered us all there, and we watched him going round and round in circles saying what Emmanuel was doing. Peter Gomes wrote me a note saying, `When's he going to make the ask?''' Beckwith recalls. Fawsley never did.

``He had no compunction in asking me personally because he knew me,'' Beckwith says. ``But when British people get a hall full of strangers, that's when they start hesitating about asking for money.''

Cambridge and Oxford will struggle to raise money for their central endowments because alumni loyalties remain with the colleges, Yale's Winter says.

Tutorial System

At Oxbridge, each college is an autonomous body where students live, eat and study. Tutorials, the classes in which a fellow teaches two or three undergraduates, take place in colleges. Dons and students can attend formal dinners in the college hall, where they usually dress in black gowns and may drink wine or port from the college cellar.

In 2004, Richard and her development director, Peter Agar, struck a deal with Cambridge's 31 colleges that commits them to run annual fund-raising campaigns and to disclose how much money they raise from which donors.

Under the agreement, alumni of colleges that aren't running annual fund-raising campaigns are ``legitimate prospects'' for Cambridge's central development office, says Francisca Malaree, development director at Girton College, Cambridge.

``Some of the colleges are very worried that their most wealthy alumni are going to be taken over by the university,'' says Malaree, adding that she thinks cooperation with the university is useful. ``This is why there's been a huge expansion in college development offices.''

Century-Old Toilets

Malaree is trying to raise 2 million pounds to renovate the college's redbrick Victorian Tower Wing, where some window frames are rotting, a set of toilets dates back a century and student rooms haven't been refurbished since the 1970s.

Trinity College, Cambridge, the wealthiest of the Oxbridge colleges, appointed its first alumni relations officer, Corinne Lloyd, in March as it geared up for the 800th anniversary campaign. For the first time, the college hosted almost 700 former students and their guests for a buffet lunch during Cambridge's alumni weekend at the end of September.

Guests gathered in Nevile's Court, a cloistered quadrangle, and dined on poached salmon and roasted vegetables. As a sign of the special occasion, they were permitted to walk on the grass, a privilege usually reserved for fellows.

Trinity, which has an endowment of 621 million pounds, has never actively fund-raised and still doesn't have a development officer. The college is a major landowner and takes in more than 20 million pounds a year from its property, says Jeremy Fairbrother, Trinity's senior bursar.

Trinity Land

Nonetheless, the common belief that it's possible to walk to Oxford from Cambridge solely on Trinity land is wrong, Fairbrother says. The college gets about 10 million pounds a year from the Cambridge Science Park, which houses 71 technology companies on property inherited in the 15th century and developed in the 1970s.

It also owns about half of the land on which Felixstowe, the largest U.K. container port, is based. The port generates about 5 million pounds annually. Retail property in the center of Cambridge produces another 3 million pounds.

Oxford also is negotiating with its colleges to coordinate fund-raising. Under one plan, a single person would handle contacts with major donors.

Funds for Libraries

``Old members were getting a little irritated,'' Balliol's Graham says. ``They would find themselves sometimes being approached by their college and then being approached by the university and then by a department and thinking, `Why aren't these people coordinating this better?'''

One of Oxford's most critical funding needs is for its libraries, which the university has earmarked for a 100 million- pound facelift. The Bodleian Library, which, as the world's first copyright library, gets one copy of every book published in the U.K., opened in 1602. Next door are the Radcliffe Camera, an 18th-century library and Oxford landmark, and the Sir Gilbert Scott-designed New Bodleian, which opened in 1940.

Underneath the three buildings and reaching up into the New Bodleian are the stacks housing 130 miles (209 kilometers) of shelves with 4.5 million books. Among the titles are 10,000 medieval, Western illuminated manuscripts that are adorned with colorful illustrations, an original copy of Franz Kafka's ``The Trial'' and the maps used to plan D-day.

Salt Mine

About five years ago, librarians began piling books on the floor because of a lack of space. Then they started sending the overflow for storage in a salt mine more than 100 miles to the north in Cheshire. A noisy, 30-year-old air-conditioning system serves only 60 percent of the collection, and there's no means of putting out a fire.

About 6,000 books a day are transported to and from the storage area via a conveyor belt built in the 1930s from wrought and cast iron. The contraption creaks noisily and breaks down a few times a year.

``The early printed books and manuscripts are put in these boxes, and they're shaken at points,'' says Richard Ovenden, keeper of special collections and Western manuscripts at the library, pointing at the conveyor belt. ``If there's a fire here, the whole place is going to go up.''

Oxford plans to build a 27 million-pound book depository for lesser-used volumes at Osney Mead on the city's outskirts. It wants to renovate the New Bodleian Library to add more open- access shelves and reading spaces, at a cost of as much as 50 million pounds, says David Perrow, associate director of Oxford University Library Services.

`Major Project Management'

``This is major project management we're talking about here -- and major fund-raising,'' he says, sporting a bookshelf- patterned tie.

Ovenden says fund-raising campaigns can work with the right approach. In 2004, the Bodleian bought papers that included the manuscript of Mary Shelley's ``Frankenstein'' after raising 5.5 million pounds.

``Every penny of that was fund-raised for,'' Ovenden says.

The library contacted private donors, trusts and the National Heritage Memorial Fund, a government-funded preservation foundation. Then it branched out to the general public.

The efforts to reach out to potential contributors are also working at Cambridge. Beckwith, the Emmanuel alumnus, is planning a gift for the university's 800th anniversary, which is three years away. He says he has talked and corresponded with Richard about the campaign.

``I'm now spit-and-polishing all of my investments so that I can make a meaningful donation,'' he says. ``I've got to try and do something more to help.''

Oxford and Cambridge may never match the financial firepower of Harvard or Yale.

``It looks implausible,'' Richard says. ``But I would like to think that we can gain some ground.''

With thousands of wealthy alumni worldwide and London's financial hub just 50 miles away from both universities, there's little doubt the money is there. The hardest thing may be getting up the courage to ask.

To contact the reporter on this story: Stephanie Baker Said in London at ssaid@bloomberg.net Alex Morales in London at amorales2@bloomberg.net.

Last Updated: November 30, 2005 20:24 EST