William Simpson
University endowments, usually a sleepy part of a university’s operations, are now at the center of campus protests that are spreading across the country, with students holding signs with slogans such as “Disclose! Divest!” and “Get away from death now!”
These demands are central to the student protesters’ efforts, with many of the students condemning what they see as their universities’ financial support for Israel’s war in Gaza. At Brown University, for example, student protesters demand that the school Donation of US$6.6 billion it will remain “accomplice” until it gets rid of “Israel and the military-industrial complex”.
The wave of campus demands for schools to divest from Israel is drawing attention to the little-known world of endowments, while also raising questions about the effectiveness of divestment as a tool for driving concrete change. Admittedly, colleges are no strangers to calls for divestment, with student protesters in the 1980s demanding that their institutions pull money of companies doing business in apartheid South Africa. More recently, university students have been pushing for their universities to divestment from the fossil fuel industry.
But divestment is often not a simple or quick process, experts say. Grants are funded by donors, who often direct their money toward specific purposes — such as providing scholarships to students from certain states or funding summer study programs.
For example, Columbia University, whose campus became a lightning rod in the pro-Palestine protest movement, there is a donation worth US$13.6 billion which is composed of 6,200 funds.
“An endowment is not a monolith. They are typically made up of many different funds, each with different goals and purposes,” noted Todd Ely, an associate professor at the University of Colorado Denver School of Public Affairs who specializes in endowments. “From an endowment perspective, the big goal is to preserve and increase endowments,” which allows the university to fund programs, support faculty and provide scholarships for students.
Ely added: “That’s why it becomes so challenging – the main goal of a grants manager is not to respond to political and social pressure.”
What does “divest” mean?
“Divestment” itself simply describes the action of selling or disposing of an investment or asset. But the term acquired another layer of meaning as college students, activists and others turned to the strategy as a way to achieve political goals.
For example, protesters believe that by eliminating investments in companies involved in controversial countries or industries, colleges can help bring about change, such as the end of apartheid, while ensuring that they reflect their students’ views on ethical issues. .
The student protesters “want no part of, or their tuition money going to, an institution that is profiting from” what they see as massive human rights abuses, noted Kelly Grotke, founding partner of Pattern Recognition: A Research Collective, which researches and consults students, alumni groups, faculty and others on divestment and donations.
What are donations and how big are they?
Endowments are funds provided by donors to a university or college that may be earmarked for specific purposes, such as supporting an endowed chair for a faculty member or providing scholarships for students; or that can be used for unrestricted spending.
Endowment funds exist forever, and the university typically spends a smaller amount each year than its annual return. This way, the endowment can continue to grow. For example, in its most recent fiscal year, Colombia’s allocation spent about 5.2% of your fundsalthough its return over the last 10 years is 8%.
The current focus on university endowments comes at a time when universities control more assets than ever before. Nearly 700 college and university funds manage about $840 billion in assets, according to a study recent study the National Association of College and University Business Officials and the Faculty Insurance and Annuities Association of America-College Retirement Equities Fund.
While not an exact comparison, a previous Government Accountability Office report report found that about 1,900 higher education institutions in 2008 had a combined total of $400 billion in endowments.
Are university endowments invested in Israel?
It’s unclear why endowments typically don’t disclose their investments; this lack of transparency became an obstacle for many student protesters.
Calls for universities to divest from Israel are not really new, but they are gaining supporters as the war in Gaza continues. The movement emerged in 2005, when some Palestinian groups created an effort called boycott, divestment and sanctions (BDS), which was joined by some students and academic groups, according to to Carleton University political science professor Mira Sucharov in The Conversation.
BDS has focused on divestment as well as calling on consumers to avoid purchasing goods or services from Israel, she noted.
Part of the difficulty in determining whether an endowment is invested in Israel, directly or indirectly, is the changing nature of how colleges invest their funds, Grotke said. Today, a large portion of endowments are invested in so-called “alternative investments,” which describe strategies outside the typical family style of buying stocks and holding them for the long term.
Alternative investments include hedge funds, private equity firms, venture capital and other vehicles that are typically kept secret because their managers don’t want to alert rivals to their strategies. Typically, investors agree to invest their funds for a period of time, which can extend to several years, making it impossible to withdraw money.
“There is a lot of privacy in what is held, especially in alternative funds,” Grotke said, pointing out that much of Oberlin’s endowment is invested in alternative strategies. “If you’re dealing with an index fund, you can go in and see what’s in it. You can’t do that with an alternative fund.”
Are colleges agreeing to divest?
Only one U.S. college, Evergreen State College, has so far agreed to divest. Some others, including Northwestern and Brown University, have said they will disclose their investment exposure to Israel, but even that may not provide much clarity, Grotke noted.
For example, in text of your agreement with its pro-Palestinian protesters, Northwestern says it will “answer questions from any internal interested party regarding specific holdings, currently or last quarter, to the best of its knowledge and to the extent legally possible.”
“This is language to circumvent disclosure,” Grotke noted. The agreement “will potentially preclude any divestment due to these contractual relationships” with alternative investment managers.
She added: “Because of the complexity of the finances, they will want to give the impression that they will cooperate, but they may not be able to.”
Northwestern did not immediately respond to a request for comment.
Does divestment work?
That’s up for debate, experts said.
On the one hand, the push for universities to divest from the fossil fuel industry “has driven a lot of new conversations in endowments about how to think about climate change and carbon risk,” noted Georges Dyer, co-founder and executive director of the Intentional Endowments. Network, which works with donations on strategies such as low-carbon investments.
But, he added, “a big part of the debate is what the impact of divestment is.”
Research on past divestment efforts is not encouraging, at least in terms of whether asset sales have a negative impact on the targeted countries or companies. For example, a analysis of the anti-apartheid divestment effort in the 1980s concluded that it “had little discernible effect either on the valuation of banks and companies with South African operations or on South African financial markets”.
But that may not be the whole issue, Grotke said, noting that the anti-apartheid movement has managed to “raise awareness of human rights abuses” in South Africa. With today’s protests, students say they “don’t want to live in a world in which they are implicated” in what they consider to be massive violations of human rights.
