Where’s the Money?

This coming Thursday, April 28, at 7 p.m., Martin Bourqui of the Responsible Endowments Coalition will speak in PAC 001 about how to encourage universities to invest their assets in socially and ecologically viable enterprise. A beautiful dinner will be provided. This talk will be of interest to everyone who desires to learn more about finance in higher education and activism around responsible investment, and it will also be crucially relevant to the work being done by most existing activist groups on campus: companies in which Wesleyan invests profit from international armed conflicts, unsustainable farming practices, hazardous conditions and gender inequality in the workplace, messy mineral and gas extraction methods, inhumane treatment of animals, and the perpetuation of international human rights abuses. Below follows a brief discussion of the issues in play.

As a rule, for colleges across the country, it costs much more than the listed full tuition to educate one undergraduate student. Ordinarily, tuition and fees account for between a between a third and half of colleges’ annual operating expenses. In order to provide the services they must, colleges are compelled to rely on other sources of revenue, namely dividends from investments and gifts from individuals and foundations. (http://www.deltacostproject.org/resources/pdf/trends_in_spending-report.pdf )

Wesleyan is no exception. In fiscal year 2010, the University drew $35.7 million from its $533.3 million endowment toward its operating budget and received $12.3 million in gifts. (https://50-116-52-166.ip.linodeusercontent.com/2011/02/04/endowment-recovers-under-new-cio/)

The University claims to have in the past regularly accrued more than $30 million from annual giving, about seventy-five percent of which went to operating costs. (http://2020.blogs.wesleyan.edu/endowment/)

While Wesleyan’s $533.3 million endowment cowers on an Excel sheet next to the nest-eggs of peer institutions such as Pomona ($1.3 billion), Amherst ($1.3 billion), Swarthmore ($1.1 billion), Williams ($1.4 billion), and Wellesley ($1.2 billion), neither is $533.3 million most people’s pocket-change, and so it is nevertheless a worthwhile exercise to look into how in fact the University invest these assets. (http://2020.blogs.wesleyan.edu/endowment/)

Eighty-five percent of Wesleyan’s endowment is invested in cash, mortgages, private equity and hedge funds. These investments are highly-bundled and very fluid. Hedge funds invest in a broad range of assets, including equities, bonds, and commodities, and their composition is in constant flux. (http://en.wikipedia.org/wiki/Hedge_fund) After investing thusly, the University has no control over and only the vaguest knowledge about what happens to its money. It (the University) believes that it (the money) will grow.

On the other hand, 15 percent of the endowment is “directly” invested in actual companies. These are more stable, long-term holdings. This roughly 15 percent of the university’s portfolio is split in half and entrusted to two brokers who invest it independently in various firms. The disclosure of the names of the companies in which the university “directly” invests has been the subject of some contention in the past, and it ought to be again.

As of this writing, one of Wesleyan’s two brokers has released a list of the names of the companies in which he had invested the University’s money as of December, 2010. This list will be made available to the campus community. Spoiler alert: it includes such box-office-busters as Atlas Energy (now a subsidiary of Chevron), General Dynamics, Raytheon, and Sara Lee.

It does not seem likely that the contents of the other broker’s half of the University’s portfolio could undermine any more effectively the University’s veneer of progressive, sustainable sensibilities than does the first. However, the second broker nonetheless refuses to disclose his list, citing a contractual assurance of confidence. It is fully within the University’s power to renegotiate this contract to its liking.

The Wesleyan investment office has consistently claimed that divulging the names of the firms in which it has direct holdings is dangerous because, it says, a set of holdings constitutes a valuable strategy which could be copied by another investor, or, conversely, that rival investors could use their knowledge of the University’s holdings to sabotage its investments by precipitously selling out of companies in which the University invests.

The investment office stood by this argument before the “first broker” released the names of the companies in which he had invested the University’s money, and the office continues to reiterate it in defense of the second broker’s refusal to make available his list.

The above argument is specious for two reasons. First, there is already in force an agreement that guarantees a 45-day delay between the generation of the list of companies and its transmission, thus negating any time-sensitive strategic value to the information. Second, the information, even if it were released on the day it was generated, would be of nearly no strategic value to anyone: most large investors invest in a similar array of companies and it is in the percentages of assets entrusted to each that more tactical subtlety comes into play. It is, of course, not any percentages but only the names of the firms in question that have been repeatedly requested of the investment office.

Why would the University’s broker desire to conceal the names of the companies in which he is investing the University’s money? Why would the University justify and be complicit in his paranoid desire to keep this information secret?

There are two demands that ought to be made of the Trustees, President, and CIO of Wesleyan University by all of the University’s current alumni, students, faculty, and staff:

If the University respects the intelligence of its current benefactors, customers, and employees, upon whom it depends, the University must

1) Renegotiate the contract it has with the second of its two brokers so that it requires that the names of the companies in which he invests the University’s money be made available to the above community stakeholders; and the University must

2) In the long term, “put its money where its mouth is” by devoting its direct holdings to investment in firms that do not profit by propagating ecological devastation and human warfare. In short, the University must invest its considerable resources in the kind of company whose business practices are consistent with the ideals of the university at which its students believe they are studying and to which its donors believe they are donating.