College endowments, usually a sleepy part of a university's operations, are now front and center at the campus protests that are spreading across the nation, with students holding up signs with slogans such as "Disclose! Divest!" and "Divest 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 of Israel's war in Gaza. At Brown University, for example, student protesters charge that the school's $6.6 billion endowment will remain "complicit" until it divests "from Israel and the military-industrial complex."
The rash of demands on campus for schools to divest from Israel is throwing a spotlight on the little-known world of endowments, while also raising questions about the effectiveness of divestment as a tool to enact concrete change. To be sure, colleges aren't strangers to calls for divestment, with student protesters in the 1980s demanding their institutions to pull money from companies doing business in apartheid South Africa. More recently, college students have pushed for their universities' divestment from the fossil fuel industry.
However, divestment is often a complex and lengthy process, according to experts. Endowments are typically funded by donors who specify how their money should be used, such as providing scholarships for students from specific regions or supporting summer study programs.
For example, Columbia University, which has been a focal point in the pro-Palestinian protest movement, manages an endowment valued at $13.6 billion, consisting of 6,200 funds.
"An endowment is not a single entity. It is usually made up of various funds, each with its own objectives and purposes," explained Todd Ely, an associate professor at the University of Colorado Denver's School of Public Affairs and an expert on endowments. "The main goal for endowments is to preserve and increase their value, which enables universities to finance programs, support faculty, and offer student scholarships."
Ely further stated, "This is why it becomes so challenging - the primary focus of an endowment manager is not to react to political or social pressures."
What is the meaning of "divest"?
"Divestment" simply refers to the act of selling or getting rid of an investment or asset. However, the term has gained additional significance as college students, activists, and others have utilized this strategy to pursue political objectives.
For instance, the protesters believe that by eliminating investments in businesses involved in controversial countries or industries colleges can help bring about change, such as ending apartheid, while also ensuring they reflect their students' views on ethical issues.
The student protesters "don't want to be part of or have their tuition dollars go to an institution that is profiting from" what they see as immense human rights abuses, noted Kelly Grotke, a founding partner of Pattern Recognition: A Research Collective, who researches and consults with students, alumni groups, faculty and others on divestment and endowments.
What are endowments, and how big are they?
Endowments are funds provided by donors to a university or college that can be earmarked for specific goals, like supporting an endowed chair for a faculty member or providing scholarships for students; or which can be used for unrestricted spending.
Endowment funds exist for perpetuity, with the university typically spending a smaller amount each year than its annual return. In that way, the endowment can continue to grow. For instance, in its most recent fiscal year, Columbia's endowment spent about 5.2% of its funds, although its trailing 10-year return is 8%.
The current focus on college endowments is coming at a time when universities control more assets than ever before. Roughly 700 college and university endowments manage about $840 billion in assets, according to a recent study from the National Association of College and University Business Officers and the Teachers Insurance and Annuity Association of America-College Retirement Equities Fund.
While not an apples-to-apples comparison, an earlier Government Accountability Office report found that about 1,900 higher-education institutions in 2008 had a combined $400 billion in endowment holdings.
Are college endowments invested in Israel?
It's unclear because endowments typically don't disclose their investments; that lack of transparency has become a sticking point for many student protesters.
The calls for colleges to divest from Israel aren't actually new, but are picking up supporters as the war in Gaza continues. The movement stems from 2005, when some Palestinian groups created an effort called boycott, divestment and sanctions (BDS) that was joined by some students and academic groups, according to Carleton University political science professor Mira Sucharov in The Conversation.
BDS has focused on divestment, as well as urging consumers to avoid buying goods or services from Israel, she noted.
Part of the difficulty in determining whether an endowment is even invested in Israel, either directly or indirectly, is the changing nature of how colleges invest their funds, Grotke said. Today, a large chunk of endowments are invested in so-called "alternative investments," which describe strategies outside the typical mom-and-pop style of buying stocks and holding them for the long term.
Alternative investments encompass hedge funds, private equity firms, venture capital, and other vehicles known for their secretive nature to avoid revealing their strategies to competitors. Investors commit their funds for extended periods, often spanning several years, making withdrawals challenging.
Grotke highlighted the privacy surrounding alternative funds, particularly in Oberlin's endowment heavily invested in such strategies. A stark contrast exists between index funds, allowing visibility into holdings, and alternative funds, which lack transparency.
Are colleges embracing divestment?
Evergreen State College stands as the sole U.S. institution to agree to divest. Northwestern and Brown University, among a handful of others, have expressed intentions to disclose their Israel-related investments. However, Grotke cautioned that even this disclosure might not offer full clarity.
For example, in the agreement with pro-Palestinian protesters, Northwestern pledges to address queries from internal stakeholders regarding specific holdings. Grotke interpreted this as a tactic to sidestep disclosure requirements, potentially shielding divestment due to contractual ties with alternative investment managers.
Grotke further remarked, "Given the intricacies of finance, institutions may appear cooperative while facing constraints."
Northwestern University did not provide an immediate response when asked for comment.
Effectiveness of Divestment
Experts are divided on whether divestment campaigns are effective, with some arguing that they can spark important conversations about climate change and carbon risk within endowments. Georges Dyer, co-founder and executive director of the Intentional Endowments Network, which advises endowments on low-carbon investment strategies, stated that the push for colleges to divest from the fossil fuel industry has led to new discussions on these issues.
However, there is ongoing debate about the actual impact of divestment. Research on past divestment movements has shown mixed results, with some studies suggesting that selling off assets may not necessarily harm the targeted countries or companies. For example, an analysis of the anti-apartheid divestment campaign in the 1980s found that it had minimal impact on the valuation of banks and corporations with operations in South Africa, as well as on the country's financial markets. Source
However, Grotke pointed out that there may be a deeper significance to the protests. He highlighted how the anti-apartheid movement managed to shed light on the human rights abuses taking place in South Africa. In a similar vein, today's protestors are making a statement that they refuse to be complicit in what they perceive as widespread human rights violations.
