It is a $12 billion question with no obvious answer. How can the University ensure that its endowment grows at a healthy rate while still convincing the Yale community that it is investing responsibly?
For Yale, wrestling with this dilemma is nothing new. In the early 1970s, the University became one of the first in the country to set ethical guidelines for its investments. Since then, those guidelines have been tested by concerns over investments in apartheid South Africa, where Yale divested from, and in tobacco companies, in which Yale maintained its holdings while calling for reforms in the industry. Now, the controversy surrounds Yale holdings controlled by Farallon Capital Management, a hedge fund company — and more broadly, the issue of how much the University should disclose about where its money goes.
Though we are certainly uncomfortable with accepting ignorance concerning what Yale invests in, we see little alternative. Our endowment has grown at a spectacular pace because it is actively managed and makes use of private equity firms like Farallon. Revealing the specifics about how Yale invests its money reduces its competitive advantage and, by extension, the returns on its endowment. Those lower returns have real consequences for Yale’s primary mission as an educational institution, limiting the funds available to do anything from offering more generous financial aid to renovating residential colleges.
The challenge is to ensure that rejecting full disclosure does not mean rejecting ethical standards. We admit this is a difficult task; after all, it is hard to establish which investments the University should rid itself of when we do not know which ones it holds in the first place. But with the right institutions in place, we believe it is possible to maintain both a private investment strategy and the public interest.
The Advisory Committee on Investor Responsibility offers the right place to start. ACIR takes, as its name suggests, an advisory role, and it also lacks information about many of the specifics concerning Yale’s investments. But when the committee, which includes students, faculty, staff and alumni, works closely with members of the Yale Corporation who do have more control over University investment, it can have a real impact. The University’s decision to divest from apartheid South Africa illustrates how this system can work: Members of the Yale community drew attention to a pressing issue of social justice, built a broad consensus on it, and helped institute new policies to ensure that consensus was reflected in the University’s investments.
So if confidentiality in Yale’s investments is going to be maintained — and we see no other choice — the University should make a good-faith effort to show its commitment to investing ethically. Better publicizing the policies in place would be a good start, as would increasing the presence of ACIR on campus. The University’s holdings may not be public, but this promise should be: When the Yale community speaks in a unified voice about the University’s investment policies, Yale will listen.