‘DIVEST’: College endowments turn into flash point of student protests

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Colleges nationwide have become major staging grounds for pro-Palestinian protests and demonstrations. And campus activism is focusing intensely on university endowments — the vast financial holdings that fund anything from financial aid to new buildings.

From Boston to California, students are calling on universities to cut ties with Israel’s economy, and especially with the country’s war in Gaza effectively seeking to make academic institutions use their financial weight to show support for Palestinians. It’s part of a movement — broadly known as BDS — that calls for boycotts, divestments and sanctions of corporations or institutions supportive of Israel, sometimes even in tangential ways.

The signs and rallying cries calling for universities to “divest” are taking a few forms. At Yale, for example, student groups are urging divestment from military weapons manufacturers that aid Israel’s offensive. Columbia students have put focus on companies like Google, which has a cloud computing deal with the government of Israel, among other countries, including the United States.

Michael Mueller, a PhD candidate at the University of Michigan and member of the campus’s Tahrir Coalition, said students want the school to cut any direct or indirect financial ties that could “presently, or in the future, profit from human rights violations from Israel and aid in the apartheid system.”

Protests against the war in Gaza continued at colleges across the country overnight April 25 into April 26, as arrest numbers climbed. (Video: Jackson Barton/The Washington Post)

“We want [the University of Michigan] to do something that has happened before, multiple times, with apartheid in South Africa, fossil fuels, Russia’s invasion of Ukraine,” Mueller said. “All of this can be done. Some things may be technical. But it can be done.”

Yet experts say such demands are unlikely to be met, for many reasons. Universities have made clear they don’t agree with protesters’ demands in the first place — a point many schools have made even plainer in recent days, with dozens of students arrested, encampments broken up and at least one graduation event canceled over the rising tensions.

Even if a university abruptly decided to back the divestment goals and alter its overall financial strategy, such moves could be difficult to implement.

Large universities, in particular, have extremely complex investment arms. The billions of dollars a school may hold are probably tied up in vast portfolios that, by design, aren’t meant to be manipulated or tweaked one stock or bond at a time.

“In practical terms, could they do it? It would be really hard because of the ways they invest,” said Sandy Baum, an expert on education finance at the Urban Institute. “It’s not like they’re buying 50 individual stocks, which is maybe the vision people have.”

Colleges and universities maintain endowments, a collection of tax-exempt donations and investments, to pay for salaries, research and financial aid, and to weather economic cycles. Yet there is vast disparity in the size of endowments across the country.

The median endowment was about $209.1 million in fiscal 2023, according to a survey of 688 colleges and universities conducted by the National Association of College and University Business Officers. But a smaller number of schools with more than $5 billion in endowments hold nearly 60 percent of the total market value. Harvard, which leads the pack, has a roughly $50 billion endowment.

For decades, university endowments drew little outside interest or attention, and often stuck to a fairly conventional approach to holding stocks and bonds. But that changed significantly when Yale forged a new model in the 1980s and 1990s under the now-famous direction of David Swensen, a former chief investment officer at the school.

The wealthiest schools now invest large portions of their endowments in private equity and hedge funds. And they have large internal investment teams that have a lot of discretion in how the money is managed, said Charlie Eaton, a sociology professor at the University of California at Merced who studies endowments.

The modern divestment movement in higher education sprang up around the same time as Yale changed its approach, with origins in the broader South African divestment campaign of the 1980s. Back then, college students pressured universities to cut ties with companies that did business with South Africa in protest of that nation’s White-minority apartheid rule. A total of 155 universities, including Columbia and Yale, divested from companies doing business with the country. At Yale, students erected an encampment as part of the protests.

The student campaign was part of a much wider global effort to end state-sponsored segregation in South Africa, and researchers have questioned whether the college focus really moved the needle. South African business leaders already saw the need for change and worried about escalations of violence, said Witold Henisz, vice dean and faculty head of the environmental, social and governance initiative at the Wharton business school at the University of Pennsylvania. The divestment campaign, he argues, was at best a small part of a bigger change effort. The research on the efficacy of divestment shows little to no evidence of its impact on companies or practices, Henisz said.

In the decades since, campus divestment campaigns have focused on a range of social, environmental and economic issues. In 2015, Columbia divested from private prisons, selling roughly 220,000 shares in the world’s largest private security firm, G4S, following a student activist campaign. The University of California system has also sold billions of dollars in assets tied to fossil fuel companies since 2020. Just last week, Yale announced it will update and expand the university’s divestment policy around assault weapons and their manufacturers.

Eaton said schools often don’t suffer material financial losses from those sales. That, he argues, shows there are ways for schools to grow their endowments in ways that also align with their values.

“It’s disingenuous for universities to say it’s too difficult for them to divest,” said Eaton, author of “Bankers in the Ivory Tower.” “It might take work, but it’s not productive to shut down debate by saying it can’t be done.”

The Israel-focused BDS movement long predates the war in Gaza. It was co-founded by a Columbia student in 2005 and has grown at various times over the past two decades. But it’s likewise unclear how much of a toll the boycott calls have had on Israel’s economy.

Dany Bahar, an economics professor at Brown University and nonresident senior fellow at the Brookings Institution, said Israel’s economy has become far less susceptible to boycotts over time, largely because of the kinds of goods and services it exports. For example, it would be harder for a company or school to cut itself off from computer chips or machinery linked to Israel than it would be to stop buying agriculture goods, which became a focus of boycotts during South African apartheid.

Israel’s economy has slumped since the Oct. 7 Hamas assault and the invasion of Gaza that followed, as thousands of workers have been called to military service, government defense spending has soared, and many industries have been disrupted by rocket fire along the country’s borders. But Bahar doubted today’s campus movement would hurt the Israeli economy much harder. Bahar estimated that within all of the major U.S. stock indexes, there may only be about 120 Israeli-based companies — or roughly 1.5 percent of the thousands of firms on the exchanges. None are in the S&P 500, he said.

“There’s only so much to divest from,” Bahar said. “All these endowments are not public, so we cannot see them. But I wouldn’t be surprised if for most of these universities, there are zero investments in Israeli companies.”

At some schools, student groups have expanded their calls beyond Israeli companies to include American firms such as Google and Microsoft, which have extensive reach around the globe and, they claim, benefit the Israeli military. But that approach has brought skepticism, too.

Mahmoud Khalil, 29, a graduate student at Columbia’s School of International and Public Affairs, said it was the “[the university’s] problem, not ours,” to sort out the logistics of divestment. When asked whether his fellow protesters had themselves split off from companies like Google and Microsoft — say, by deleting private Gmail accounts — he said that “it’s not an easy process.”

“We want divestment, a commitment to divestment,” said Khalil, a representative for the campus encampment. “Not a committee to explore divestment. We want tangible steps.”

In a statement, a Google spokesperson said Google Cloud supports a number of countries with cloud computing services, including Israel. Users agree to acceptable-use policies and terms of service.

“This work is not directed at highly sensitive, classified, or military workloads relevant to weapons or intelligence services,” the spokesperson said.

Teji Vijayakumar, 21, a senior who serves as Columbia’s student body president, said that when she asked the administration about the challenges of Israeli divestment, the response she got was that the school wasn’t in a financial position to be able to divest, “even if they wanted to.” She added that Columbia’s planned “global center” satellite campus in Tel Aviv “hasn’t even broken ground yet, so they could just, you know, not.”

Columbia undergraduates just voted on whether the school should divest from Israel, close the planned academic center in Tel Aviv and end a dual-degree program with Tel Aviv University. Student voters heavily backed all the initiatives, with 76.5 percent supporting divestment and only 9.8 percent opposing, according to results released Monday.

Some universities have said their investment managers can only focus on getting the maximum returns for the institutions’ money, not on what other interests might benefit from the investments. This week, New York University spokesman John Beckman said the school is not considering Israeli divestment in part because its $5.9 billion endowment needs maximum returns to “help the university fulfill its research and educational mission.”

David Yermack, a professor of finance at NYU, said some students are not gaming out the long-term implications of what they are asking for.

“If endowments aren’t yielding returns to support expenses like financial aid, schools are going to make up the difference somewhere else,” Yermack said. “They’re going to make that up by raising tuition.”

Morgan reported from New York.

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