How much do you really know about Penn's endowment?
It's big, though not as big as Harvard's or Yale's. But, even after a 3.9-percent drop leaving it at $6.3 billion, it's more money than most students will ever see. And it's heavily invested in a variety of "asset classes."
But invested in what?
For a number of reasons, Penn and most other universities do not disclose the specifics of their investments. Whether to maintain a competitive edge or for legal reasons, most information remains tucked away in confidential files.
For some students, however, this privacy is disconcerting, and with bagels and coffee in hand, representatives from schools across the country gathered in Huntsman Hall this weekend to discuss issues related to endowment transparency and how to get their schools to open up.
Tell us your secrets.
Organized by the student-activist group the Responsible Endowments Coalition, the conference aimed to help students learn more about schools' investment strategies. It also seeks to brainstorm ways to use the $400 billion that universities collectively invest through their endowments in responsible and socially mindful ways.
But students were united by a common problem: Due to a combination of legal limitations and strategic decisions, most schools give students only bare-bones information about investments. Even at schools with relatively transparent endowments, there are limitations to what information is accessible.
As campus constituents, students "are the ones that the endowment is directed to benefit. You have a right to know . who is funding your education," Morgan Simon, the organization's executive director, said in an interview before the conference.
Gaining access to schools' investments, though, isn't as simple as running a Google search or even searching public records. Universities manage millions or billions of dollars and consider their investments a trade secret. Endowments are designed to sustain the university's funds in perpetuity, and keeping the latest, hottest opportunity close is a way to maintain a competitive edge.
Activist groups and students, then, are left to wonder in which companies their school is investing, and whether those companies' practices align with the school's values and mission. They counter that colleges and universities have greater obligations than simply earning money, and allowing students and members of the school's community access to a list of companies in which the school is invested is a matter of accountability and responsibility.
Two sides to every coin
For many, endowment transparency is a way to start a discussion around social and environmental issues.
Without knowing where universities invest their endowments, it's difficult for activists to encourage them to pressure companies into pursuing greener technology or better in-company social policies.
The endowment "is a very big number, but what's behind that?" said Mark Orlowski, executive director of the Sustainable Endowments Institute.
For the past three years, his group has measured college and university sustainability efforts, awarding grades in categories that include recycling and green building.
This year, Penn was one of 15 schools to receive an overall grade of an A-, along with individual A's in administration, climate change and energy, food and recycling, green building, investment priorities and shareholder engagement.
The school's lowest grade - a C - came in endowment transparency.
Although endowment transparency seems unrelated to transportation and green energy, it it included because "it's very hard to have a basic conversation about sustainability without having information . about what the investments are," Orlowski explained.
To the REC, moving toward greater endowment transparency is one "tool in the tool box" for students working to encourage more responsible investing, Rose Levine, chairwoman of the board, said.
REC's focus differs slightly from the Sustainable Endowments Institute - it works with students to encourage more responsible investing across a swath of issues, from putting money into local communities to promoting equal rights - but both groups see a responsibly invested endowment as going hand-in-glove with an endowment that performs well in the long run.
There's "not just the values piece of it, but . companies that protect resources and treat their people well do better financially," Simon, of the REC, said.
For the University, however, there are strategic, economic and legal considerations they believe must be taken into account.
Maintaining a competitive advantage, for instance, is something considered important to the endowment's security.
"Coke doesn't want its recipe in the public domain, we don't necessarily want our portfolio in the public domain," explained Kristin Gilbertson, Penn's chief investment officer.
There are also legal obligations that require the University to keep certain investments private, such as those made in hedge funds.
Typically, investments in public equities - the stock market - are the investments most easily disclosed.
And although economic and legal factors often mean that investments aren't disclosed, administrators say that's no reason to think the University is engaging in unethical investment strategies.
"I think there needs to be a trust level that ethical considerations are taken into account," said Executive Vice President Craig Carnaroli.
When looking at potential managers, Penn looks at "their track records, their backgrounds, the types of investments they've done. . A lot of ethical things come out of the due diligence process," he said.
Penn has also made a visible commitment to investing in green technology: Two of Penn's asset managers exclusively seek clean-tech investments, and the University is the largest academic purchaser of wind energy in the country.
Socially honest, financially furtive
Although students have been concerned about endowments and investor responsibility for a few decades - most pinpoint the first interest stemming from the Vietnam War, with a movement actively picking up during the tail end of South African apartheid - there has been an uptick in interest and action in the past few years.
There has also been more dialogue, both among students and with administrators.
In earlier years, "most students who weren't majoring in finance didn't understand how the school's endowment had to do with corporate power," Levine said, adding that students today are "more nuanced and professional" in networking and in working with administrators.
For instance, on many campuses, including Penn's, students, administrators and trustees have formed social-responsibility advisory committees, which advise Trustees when voting on shareholder resolutions called social proxies.
These votes come up when a shareholder has a complaint about a company's social record, like policies regarding domestic partnerships or environmental regulations.
Once a year, all shareholders receive copies of the resolution, which they then vote upon.
Created in 2004, Penn's Social Responsibility Advisory Committee advises Trustees on how to vote when these resolutions are presented. Prior to the creation of SRAC, Penn abstained on social-proxy votes.
SRAC also recommended, through the University Council, that the University divest in companies that had ties to the genocide in Sudan in 2006, which Penn eventually did.
The creation of SRAC "had a strong impact on the Trustees' voting position," said Jerry Porter, formerly the chairman of the committee, adding that now the Trustees frequently act on the board's recommendations.
Penn also decided this year to release proxy-voting records, which led to its C grading from the Sustainable Endowments Institute. In the past two years, Penn had been graded an F and a D.
"By the spirit of the work we were doing with [SRAC] we realized we could disclose to the University community the proxy issues we were discussing, without disclosing the specific holding," Carnaroli said.
While the creation of the committee is seen as a positive step, SRAC's purview is somewhat limited. The charter "doesn't say . anything on making decisions about investments, it's only about voting on social proxies that have already been proposed and only been identified on social issues," said Ryan Burg, a Wharton MBA student who was involved with SRAC during his undergraduate years. Burg was also a cofounder of the REC.
The Trustees "only vote those [proxies] where there's a clear social harm very directly tied to the particular company in question," Gilbertson said. Last year, SRAC evaluated six companies on nine social-proxy issues, a number which Carnaroli said comprised only a small percentage of Penn's public holdings.
Investments in the future
Still, activists are optimistic that, over time, a more transparent endowment will become part of a new best practice surrounding responsible investing.
Orlowski points out that the number of universities that make shareholder-voting records available jumped from 15 percent to 30 percent, and that the number of schools with shareholder-advisory committees also increased, from 13 percent to 18 percent.
"The increased level of information would hopefully be in part because of an increased level of interest. Typically policies don't change because there's no interest," he said.
"I think the ideology [surrounding responsible investing] is really shifting," Burg said. "There was a time when it was perceived as a tree-hugger hippie movement, but it's certainly not like that now. There are a of lot very shrewd financial investors who are looking to maximize profits but want to do so instrumentally through recognition of social and environmental risk."
