In recent weeks the Responsible Endowment Project and Undergraduate Organizing Committee have gained attention on campus by alleging the Yale Investments Office has made unethical investments. One of their two primary complaints is that Yale’s investment in HEI Hotels and Resorts, a private equity fund manager that acquires and manages hotels, is an unethical one. They also argue the University must increase endowment transparency to allow for greater oversight. To make sure their voices are heard, they have wrote to this paper and staged a sit-in at the Yale Investments Office.
Although the recent controversy may have soured some students’ opinions of Yale’s investments, in reality, we all should be holding our heads high. Yale is one of the most ethical institutional investors and the University’s chief investment officer, David Swensen, is one of the most ethically trustworthy managers in the business. What the UOC and Responsible Endowment Project fail to grasp is that opacity is a necessary part of responsible institutional investing and that the HEI Hotel and Resorts controversy is in part a union issue and is not necessarily a matter of ethics.
Although accounting transparency is vital to the ethical governance of a corporation, investment transparency is universally destructive to endowments and other large investors. When Yale makes an investment or employs a particular strategy, the confidentiality of its operations is of paramount concern. A large portion of Yale’s excellent returns comes from the ability of the Investments Office to locate and invest in talented and ethical fund managers, who come from domestic equity funds, hedge funds, private equity funds, real estate funds, timber funds, and oil and gas funds, among other parts of the investment world. The Yale Investments Office takes great pains in locating these managers and making its other investments, and if everyone were to have a complete list of Yale’s holdings and asset allocations, this work would be for naught — everyone would rush to invest in the same holdings as Yale, and our returns would be diluted by copycats.
The UOC fails to understand the fundamental fact that the investment world relies on the protection of intellectual property. If Yale’s endowment were to become as transparent as the UOC desires, the Yale portfolio would become common knowledge, and Yale’s returns would cease to be extraordinary. Just as Coca-Cola and the best chefs protect their secret recipes to prevent others from destroying their businesses by copying them, the Yale Investments Office keeps its holdings from the public. To generate long-run returns that will keep the University healthy and help it weather hard times like these, Yale must keep the portfolio opaque.
Although many institutions must balance opacity and oversight, Yale has developed an effective system to achieve both goals. At Yale, the main body responsible for creating guidelines for responsible investing is the Corporation Committee on Investor Responsibility, which is aided by the Advisory Committee on Investor Responsibility, a committee on which two students serve. In establishing these organizations in 1973, Yale became a pioneer for ethical institutional investing. Providing further oversight, the Yale Investment Committee oversees the entire portfolio.
On top of this, Yale has another force driving responsible investment. An organization is often only as ethical as its leaders, and David Swensen is recognized by the financial industry as one of the most conscientious and ethical institutional investors. Yale’s endowment is in good hands — both financially and ethically.
The HEI conflict is emblematic of student misunderstanding of the Yale investment process and ethical mission. This conflict gained publicity at Yale because the union of which some Yale workers are a part got students to advocate for their fellow workers who work for HEI and might unionize. Violations of workers’ rights must be addressed if they are substantiated, but the current campaign to paint as unethical Yale’s investment in an organization with a union conflict is intellectually dishonest.
The recent sit-in at the Yale Investments Office was inappropriate because the UOC engaged in heavy-handed tactics suitable only for extreme cases, and certainly not appropriate given the circumstances of this case. A campus rally for union organizations would be appropriate advocacy, but a sit-in that disrupts investment professionals striving to protect our University from tough financial times is not.
Daniel Graves is a senior in Ezra Stiles College.