Divesting university endowments: Easier demanded than done
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May 09, 2024
Todd L. Ely, Associate Professor of Public Administration; Director, Center for Local Government, University of Colorado Denver -
The Conversation
Campus protests expressing solidarity with the Palestinian people and objecting to Israel’s military campaign in Gaza include many calls for universities and colleges to divest – a word that basically means sell – any of their assets that are tied to Israel or connected to companies supplying weapons and technology to Israel’s government. The Conversation U.S. asked Todd L. Ely, a University of Colorado Denver public administration scholar, to explain the challenges of meeting this demand.
What are endowments?
Endowments are pools of assets that originally come from donations. Nonprofits and some public organizations invest those assets, which grow over time, and disburse a small percentage of them annually to support their missions. Nearly all nonprofit colleges and universities have endowments, as do hundreds of public institutions of higher education – some through associated nonprofit foundations.
This wealth is highly concentrated. Nearly half these assets belonged to the 20 largest endowments in 2021. Endowments worth $40 million or less are more typical and around 95% colleges and universities have less than $1 billion in their endowments.
Endowment managers generally see making money as their primary objective and large amounts of these assets are subject to restrictions due to donors’ preferences.
Columbia University’s $13.6 billion endowment, for example, as of 2023 was split among more than 6,200 different funds and about two-thirds of the assets in its endowment were subject to donor-related limitations.
Because colleges and universities aim to preserve their endowments to support their operations for the foreseeable future, they typically spend about 5% of those assets per year on student financial aid and assorted programs to supplement what they can afford from their other revenue – primarily tuition, fees for housing and food, as well as state funding for public institutions. Columbia’s endowment, for example, disbursed $679 million during its 2023 fiscal year.
Many protesters have said they object to their tuition dollars being in an endowment with financial ties to Israel. But that’s not how endowments work. Universities and colleges typically spend all the money they receive from tuition on core operations. They supplement those funds with revenue from other sources – including their endowments.
How much information about endowments is made public?
Because it’s unclear how much of these assets are tied to Israeli companies or the Israeli military, many protesters are calling on their colleges and universities to disclose more information about what’s in their endowments.
While universities and colleges typically release their audited financial statements annually, details about their endowments’ holdings are hard to find for several reasons.
First, professionally managed investments change so frequently that what’s in an endowment is a moving target. Periodic reporting at best reflects a historical snapshot.
Third, colleges and universities are increasingly hiring outside asset managers and hedge funds to manage their endowments. Agreeing to keep quiet about those investments may be required due to the proprietary nature of those deals.
Some information about endowments does show up in 990 forms, which are informational returns charities file annually with the Internal Revenue Service and are made public. That form’s Schedule D includes the endowment’s size, its administrative expenses and the general restrictions it faces.
Although the forms require the disclosure of “Activities Outside the United States” in Schedule F, the highest level of detail required is the region of those investments. In other words, any investments in Israeli companies might be lumped together with investments in corporations based in Qatar or Lebanon.