Public and private universities alike have been transformed into financial shell-games for Wall Street’s wealthiest hedge-funds, while tuition and student debt soar, adjuncts are exploited, and the lifetime expected returns on a university degree plummet.
US universities have over $100 billion in endowment funds invested with hedge funds, and pay over $2.5B in fees to hedge fund managers every year. More than half of America’s universities let their endowment board members do business with the university, and sometimes the trustees manage the funds themselves, sitting on both sides of the transaction to hire themselves and pay themselves handsome fees. Sometimes they decline the fees they’re paying themselves, call them “donations” and get buildings named after them for their generosity.
Public universities insist that their relationships with hedge funds are not subject to public records requests. Where information does leak out, we learn that public money is being invested in investor-friendly lobbying organizations that fight against student debt relief.
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.
Universities Are Becoming Billion-Dollar Hedge Funds With Schools Attached
[Astra Taylor/The Nation]
(via Naked Capitalism)
(Image: Osborn Hall, Yale College, New Haven, Connecticut, 1901, public domain)