Endowment 101 and Continuing the Conversation on Divestment

So what is the deal with our endowment?

Here’s some basics. As of June, our endowment rests at around $840 million. See this most recent endowment report. University endowments are accumulations of various assets that work to serve as “perpetual capital.” The yearly returns on these assets and investments, ideally, would cover all operating costs for the University for the academic year. For certain schools (corporations?) like Harvard and their $36 billion endowment, this is not a problem. But little old Wesleyan, for one administrative reason or another, has had to draw from the endowment for decades to help cover yearly operating costs. So naturally, we’ve been under pressure to offset that spending, which can be done in two major ways: fundraising (see entire ThisIsWhy campaign) and “better” investment of endowment assets. The latter of the two raises the question of where and how our investments are made, which have been the focus of numerous campus activist groups for some time.

Recall WesFest 2015. The Wesleyan Coalition for Divestment and Transparency staged a sit-in in President Roth’s office to push for divestment from the fossil fuel industry, the prison-industrial complex, and companies involved in the Israeli occupation, which members of the coalition saw as intersectional and inherently inseparable from one another.

This instance of direct action brought issues regarding Wesleyan’s endowment and how our money is invested to the forefront of campus discussion. Last Thursday, November 5th, 2015, Wesleyan’s Committee for Investor Responsibility, an “all-student committee under the authority of the WSA,” hosted a panel discussion entitled “Ethics and Transparency in Managing Wesleyan’s Endowment” to continue the conversation. The panel was moderated by Joel Michaels ‘18. Panelists included Anne Martin, Wesleyan’s Chief Investment Officer, Gil Skillman, Professor of Economics, and Noah Markman ‘13. The discussion began with opening remarks from each panelist, with audience questions being fielded after. Michael Roth ’78 was scheduled to give opening remarks, but could not attend because of family emergency.

Anne Martin became Wesleyan’s Chief Investment Officer in in 2010. She previously worked in the Yale investment office, which has recently come under fire for paying its fund managers fucktons of money. Her full bio can be found here. She began by explaining how 90-95% of our endowment’s investments are externally managed, meaning that the investment office will “choose its fund managers and which of their funds to invest in, but it doesn’t control the makeup of those funds.” If it helps clarify (it doesn’t), see diagram below.

Professor Skillman, who’s done research on need-blind policies at Wesleyan, opened by introducing the concept of Wesleyan’s “mission-sustaining budget” which is a hypothetical budget that tries to integrate “competitive balance and industry best-practices” into each major spending category (e.g. financial aid, major maintenance, compensation for faculty and staff, etc.). This means we want to use various ways of spending money to keep Wes Wes and to continue to have reasons why people would come here instead of Williams (Williamsification concerns aside, for now). Skillman explained further that our budget is consistently above our annual returns on the endowment, so the position of the university is that we need more money (read: we need to raise tuition and invest in more profitable areas).

Noah Markman ‘13 was a former member of the CIR and currently works as a Senior Associate for Ceres, a not-for-profit whose mission is to “mobilize investor and business leadership to build a thriving, sustainable global economy.” Noah explained that, in fact, ethical considerations sometimes have overlap with investments with high returns. He stated that “there’s actually really strong investment reasons to look skeptically at the story the fossil fuel industry is telling.” Sidenote: last spring, the CIR presented a 42-page proposal to the Board of Trustees entitled “Proposal Concerning the Divestment of Wesleyan University’s Endowment from Coal,” which looked at specific case studies showing coal investments as being socially harmful and financially risky. Sidenote 2: the proposal was not acted on.

The first major line of questioning brought to the panelists centered around what the institutional process of declining an investment for ethical reasons looks like. Anne explained that the major guidebook for the University’s policy on this issue is The Ethical Investor , published in 1972. She also said that, in her second year, she brought an external manager who happened to have 26% of their portfolio invested in tobacco holdings, to the investment committee for approval. According to her, “we had a very split vote on this and ultimately we decided not to proceed.” An Investment Policy Statement which was approved in February 2015 by the Board of Trustees and which outlines the specific university policy on ethical investment, was provided to the audience members. Panelists were pressed to outline the decision-making process under a hypothetical situation in which ethical considerations did not coincide with financial gain but responded by stating that such circumstances were too small in number to warrant consideration.

Another question that was raised, especially in the context of the recent news about Yale’s investment managers, was how much we actually pay our elusive external managers. Martin explained that we have a range of how much we pay our managers, but stressed that we must pay them “competitive rates.”

The final discussions centered around transparency and to what extent students are considered stakeholders in the endowment. One audience member explained how using external managers seems to “shirk responsibility” away from the university which would benefit from the managers’ relative anonymity to the students, to which there was no clear response. A member of the Coalition for Divestment and Transparency detailed a circumstance surrounding the sit-in last spring in which the Investment Office was able to state that we were not invested in private prison companies only 30 minutes after the initial demand for information regarding our potential holdings in CCA, GEO, and G4S was made. The member questioned how such speed was possible given the complex network of external managers, funds, and the Investment Committee detailed earlier in the panel, and how could students trust in the reliability of this information without access to the means to verify it.

At the conclusion of the panel, members of the Coalition for Divestment and Transparency held up signs instead of applauding the panelists. In an official response to the panel, the Coalition states:

Until we begin to prioritize people over profit, our endowment will not be ethical. Yesterday, Wesleyan’s chief investment officer Anne Martin clearly stated that she does not believe that students have a stake in where the endowment is invested. According to her logic, the endowment is accountable to the donors not the students; the University is a business and students are the customers. By putting pressure on the University to divest, students can reclaim some of the power that has been taken from them by the incorporization of the university to shift our role from customers to stakeholders. The Coalition for Divestment and Transparency will not stand for the money of our endowment being invested in the violent and oppressive systems of the Israeli occupation, the prison industrial complex and climate change. Injustice is not an Investment.

Question remaining to be asked: how can this place reconcile the fact that we are not considered stakeholders yet, in almost every aspect of our studenthood outside of the endowment office, we are treated as future assets to this University?

Here are some additional endowment fun facts from the meeting, courtesy of astag_rocky:

• Our endowment was 840 million as of June 2015. It was 500 million 5 years ago.
• Wesleyan used to be the richest school in endowment per student bar nobody in the 1960’s.
• What can we do to make us more competitive (According to Skillman):

1. Raise tuition level – not popular and counterproductive because it hurts us in relation to our competitors.
2. Endowment pursuit– (most important single thing).

• Now we are near the bottom, perhaps 23/24 out of 26 schools, of our peers. We are still relatively endowment poor, but we are making progress.
• In terms of financial aid, we are off need blind now, and are not as generous in aid as our peers.
• We need need neutrality. This means it shouldn’t depend on your families’ income level whether you can attend Wesleyan. This isn’t true now (Skillman).
• In the last 25 years, there are far fewer students coming from the middle income levels than in the past.