Universities Are Becoming Billion-Dollar Hedge Funds With Schools Attached

Las universidades se están convirtiendo en mil millones de dólares los
fondos de cobertura escuelas adscritas

TheNation/03-08-2016/Por: Astra Taylor

Resumen: A propósito de la disminución del apoyo estatal a la educación superior,
las Universidades públicas y no públicas de los EE.UU., vienen invirtiendo
en fondos de cobertura, que le permite a los miembros de la junta hacer
negocios con la universidad. Mientras la matrícula de las universidades
aumenta, la deuda de éstos con las universidades asciende también
vertiginosamente, lo cual obliga a disminuir el grado de la universidad. El
estado de la educación superior es un ejemplo de la austeridad en los
Estados Unidos, que beneficia a los banqueros con el fundamentalismo en el
libre mercado. Este mecanismo de enriquecimiento bajo los fondos de
cobertura, se esconde en la excusa que proporcionan una “cobertura” para
proteger las carteras de los inversores en tiempos difíciles, pero en
realidad, son vehículos libres de supervisión e impuestos, lo que significa
que no están regulados, se enfrentan a requisitos mínimos de divulgación y
pueden participar en todo tipo de apuestas arriesgadas y manipulaciones del
mercado. No hace mucho tiempo, las universidades eran administradores
cuidadosos de ingresos por donaciones y evitar así este tipo de
situaciones. A principio de los 70, universidades como Harvard y Yale,
idearon políticas de inversión éticas para las dotaciones que consideraban
como impacto social. Sin embargo, en los 90 las cosas empezaron a cambiar,
pues, las escuelas públicas y privadas se convirtieron en jugadores de alto
riesgo superando la recaudación de fondos como el principal motor de
crecimiento de la dotación. Con ello el tema devino en cascada al observa
que instituciones educativas públicas exentas de impuestos hacen negocios
con empresas para esquivar impuestos en paraísos fiscales. Las que más se
benefician son las escuelas de élite quienes atraen a mayores donantes y
ganan mayores rendimientos de las inversiones, polarizando aún más el
sistema educativo. En la noticia, Taylor, destaca el informe titulado
«logros educativos y la crisis financiera,» de Joshua Humphreys, presidente
y miembro principal Croatan Instituto, quien apunta a una consecuencia aún
más inquietante de las prácticas de inversión de riesgo. Al adoptar
tácticas especulativas comerciales, fondos de cobertura y de capital
privado, «dotaciones jugaron un papel en magnificar ciertos riesgos
sistémicos en los mercados de capitales». En otras palabras, la dotación no
eran simples víctimas inocentes de la crisis financiera de 2008, pero en
realidad ayudaron a activarlo.

 

Have you heard the latest wisecrack about Harvard? People are calling it a
hedge fund with a university attached. They have a point—Harvard stands at
the troubling intersection between higher education and high finance, with
over 15 percent of its massive $38 billion endowment invested in hedge
funds. That intersection is getting crowded. Yale’s comparatively modest
$26 billion endowment, for example, made hedge fund managers $480 million
in 2014, while only $170 million was spent on things like tuition
assistance and fellowships for students. “I was going to donate money to
Yale. But maybe it makes more sense to mail a check directly to the hedge
fund of my choice,” Malcolm Gladwell tweeted last summer, causing a
commotion that landed him on NPR

What has gotten less attention is how it’s not just universities with
eating clubs and legacies that are getting into the game. Many
«public» universities are also doing so, in part because state support for education has been
cut, but also to compete with richer schools by rapidly increasing their
more limited wealth. Though the exact figure is hard to determine, experts
I consulted estimate that over $100 billion of educational endowment money
nationwide is invested in hedge funds, costing them approximately $2.5
billion in fees in 2015 alone. The problems with hedge funds managing
college endowments are manifold, going well beyond the exorbitant—some
would say extortionate—fees they charge for their services.

Consider the problem of conflict of interest on endowment boards of both
public and private colleges. One 2011 survey showed that 56 percent of
endowments allowed board members to do business with the university. In
2013, Dartmouth came under fire when it was revealed that some
trustees—including Stephen F. Mandel Jr., who was both chairman of the
board of trustees and head of the hedge fund Lone Pine Capital—also managed
investments for the school. The trustees were blasted, in a widely cited
open letter, for recycling a portion of their “sky high fees” back to the
university as “donations” for which they were often rewarded by having a
building named in their honor.

Marcie Smith, executive director of the Responsible Endowment Coalition,
calls this a “rage-inducing picture.” “Universities raking in a record $40
billion in 2015, Wall Street stacked boards of directors approving
self-dealing investments, all while tuition continues to rise, student debt
continues to mount, and value of a college degree declines,” she says. “The
state of higher education is yet another example of austerity in America,
and signals the dangerous creep of a free-market fundamentalism that thinks
all institutions in society exist to enrich the bankers.”

Combine all of the above with the recent stories about hedge fund managers
being exploitative sociopaths—the kind willing to inflate the price of
lifesaving medicine or force elementary schools in Puerto Rico to close to
make a buck—and one wonders why public institutions are doing business with
them at all. Given the history of successful college divestment movements,
one can easily imagine a provocative next step: campaigns that aim to force
universities to stop doing business with hedge funds altogether. While they
declined to give specifics since they are still in the planning phases,
organizers I spoke to said just such a movement is brewing.

All told, hedge funds have over $3 trillion worth of assets under
management globally. In theory, they exist to provide a “hedge” to protect
investor portfolios in tough times. Hedging, seen in this light, is simply
one investment strategy among many. In practice, however, hedge funds are
alternative investment vehicles that tend to be housed offshore to avoid
oversight and taxes, which means they are largely unregulated, face minimal
disclosure requirements, and can engage in all sorts of risky bets and
market manipulations.

Not long ago, universities were, in the words of one report, “careful
stewards of endowment income” and avoided such shenanigans. In the early ’70s,
Harvard and Yale spearheaded committees on investor responsibility and
devised ethical investment policies for endowments that considered things
like social impact. In the ’90s, things began to change. Many schools,
private and public, have become high-risk gamblers, with finance overtaking
fundraising as the main engine of endowment growth. A more aggressive
approach to investing paid off—until the economy melted down and caused
some endowments to lose up to 30 percent of their value.

But experts and activists have other concerns. Some commentators, for
example, are troubled by public tax-exempt educational institutions doing
business with companies notorious for dodging taxes in offshore havens.
More generally, tax exemption is a giant government subsidy that
disproportionately benefits elite schools (the ones that attract the
biggest donations and earn the largest investment returns), thus further
polarizing an educational system already separated into haves and have-nots.

And it gets worse. In a report called “Educational Endowments and the
Financial Crisis,” Joshua Humphreys, president and senior fellow at Croatan
Institute, points to an even more disturbing consequence of risky
investment practices. By embracing speculative trading tactics, exotic
derivatives, hedge funds, and private equity, “endowments played a role in
magnifying certain systemic risks in the capital markets,” Humphreys
writes. What’s more, their initial success encouraged other institutional
investors (think pension funds, sovereign wealth funds, and foundations) to
follow in their footsteps, amplifying the system’s overall volatility and
instability. In other words, endowments were not just innocent victims of
the 2008 financial crisis, but actually helped enable it.

“Hedge funds, as they were initially conceived, have a potential role to
play in a long-term endowment seeking to ‘hedge’ certain risks,” Humphreys
told me, making clear he’s hesitant to write them off entirely. “But their
arbitrarily high fee structures, the excessive compensation of their
managers, and their deliberate evasion of taxes and transparency make hedge
funds easy targets for stakeholders rightly concerned about the simmering
crisis of higher education today.”

Last summer, Garrett Shishido Strain, a 27-year-old graduate student in
public policy at the University of Washington, filed a public records
request to learn exactly how much of the university’s $3.1 billion
endowment is invested in hedge funds. After some months, officials finally
claimed the information was “exempt from public inspection” on the grounds
that “such information, if revealed, would reasonably be expected to result
in loss to the University of Washington consolidated endowment fund or to
result in private loss to the providers of this information.” When reached
for comment, Ann Sarna in the school’s Treasury Office claimed to have no
knowledge of Strain’s request. First she said the information is available
to the public on the university’s website—it is not—and then she said she
could not provide a figure. “We don’t track hedge funds as a separate
investment strategy,” she wrote in an email.

Strain is disappointed with the administration’s stonewalling, but not
surprised. A report by Preqin, an organization that provides research to
investors, states that the school’s investment in hedge funds is around
$500 million. Given that hedge funds operate on what’s called the “2 and
20” model, which means they charge a baseline of 2 percent of assets under
management while taking 20 percent of any profits, the school could be
spending well over $10 million a year on hedge fund fees alone. Meanwhile,
administrators only recently acquiesced to the demands of student,
custodial, and food service workers who have been rallying under the banner
“raise wages, not tuition,” finally agreeing to pay Seattle’s celebrated
$15 minimum wage—but not until 2017.

Strain, however, doesn’t just find it objectionable that money managers are
so lavishly compensated while staff are underpaid and students overcharged.
He also objects to the fact that by funneling money to hedge funds, public
universities are, incongruously, supporting the antisocial policies hedge
fund managers are notorious for rallying behind: rolling back corporate
regulation, slashing the minimum wage, eliminating pensions, privatizing
public schools, trammeling unions, cutting taxes for the wealthy, and
forcing broke nations further into insolvency (through “vulture” funds that
specialize in distressed sovereign debt).

 

This is true for the University of Washington specifically. Public records
show that it does business with various hedge funds—including the
aforementioned Lone Pine Capital—associated with the Managed Funds
Association, “the voice of the global alternative investment industry.” Or,
to be more blunt, the industry’s lobbying arm.

And what does the voice of industry call for? According topublic filings,
the Managed Funds Association has crusaded against various policies
designed to curb inequality. For example, in 2014 it fought the Inclusive
Prosperity Act, which aimed “to impose a tax on certain trading
transactions to…stop shrinking the middle class.” The act would have levied
a small tax on financial transactions, including stock trades, and funded
things like low-income housing assistance, public transit, and—here’s the
kicker—student debt relief.

The time has come for students to connect the dots between ballooning
student debt, the poor treatment of campus workers, and the obscene wealth
of hedge fund oligarchs. Once they do, they can fight back by following in
the footsteps of recent mobilizations against the financial sector. In
2013, a group called Kick Wall Street Off Campus forced Minnesota’s
Macalester College to move some, though not all, of its money out of Wells
Fargo to protest the bank’s role in community foreclosures. In June of last
year, Santa Cruz County pulled together to get its money out of five giant banks—including Citicorp, JPMorgan Chase, and Barclays—that pleaded guilty last spring to felony charges that they
rigged the world’s foreign-currency market. Similar campaigns could easily
be waged against university endowment partnerships with hedge funds.

Of course, kicking hedge funds off campus won’t solve the college crisis or
instantly reform the financial sector. Nevertheless, targeting hedge funds
remains a promising tactic for uniting students and workers against hedge
funds’ efforts to increase inequality, and using our tuition dollars and
public subsidies to do so. This tactic would be especially effective at
public institutions, where divestment campaigns should be coupled with
calls for increased state funding for higher education and better pay for
low-wage workers.

“It’s easy to feel powerless, but hedge funds need university endowments,
just like they also need public pensions. If that money was taken away, it
would really affect them,” Strain says, and he’s right. Campus divestment
movements have a proven track record, going back to campaigns against
apartheid in the 1980s. Over the last few years, climate activists have
pressured school trustees to divert trillions of dollars from fossil fuels,
and last year Columbia became the first university to divest from private
prisons. Hedge funds deserve to be next on the chopping block.

Fuente de la noticia:
www.thenation.com/article/universities-are-becoming-billion-dollar-hedge-funds-with-schools-attached/