Have you heard the latest wisecrack about Harvard? People are calling it a hedge fund with a university attached. They have a point—Harvard stands at the troubling intersection between higher education and high finance, with over 15 percent of its massive $38 billion endowment invested in hedge funds. That intersection is getting crowded. Yale’s comparatively modest $26 billion endowment, for example, made hedge fund managers $480 million in 2014, while only $170 million was spent on things like tuition assistance and fellowships for students. “I was going to donate money to Yale. But maybe it makes more sense to mail a check directly to the hedge fund of my choice,” Malcolm Gladwell tweeted last summer, causing a commotion that landed him on NPR.
What has gotten less attention is how it’s not just universities with eating clubs and legacies that are getting into the game. Many public universities are also doing so, in part because state support for education has been cut, but also to compete with richer schools by rapidly increasing their more limited wealth. Though the exact figure is hard to determine, experts I consulted estimate that over $100 billion of educational endowment money nationwide is invested in hedge funds, costing them approximately $2.5 billion in fees in 2015 alone. The problems with hedge funds managing college endowments are manifold, going well beyond the exorbitant—some would say extortionate—fees they charge for their services.
Consider the problem of conflict of interest on endowment boards of both public and private colleges. One 2011 survey showed that 56 percent of endowments allowed board members to do business with the university. In 2013, Dartmouth came under fire when it was revealed that some trustees—including Stephen F. Mandel Jr., who was both chairman of the board of trustees and head of the hedge fund Lone Pine Capital—also managed investments for the school. The trustees were blasted, in a widely cited open letter, for recycling a portion of their “sky high fees” back to the university as “donations” for which they were often rewarded by having a building named in their honor.
Marcie Smith, executive director of the Responsible Endowment Coalition, calls this a “rage-inducing picture.” “Universities raking in a record $40 billion in 2015, Wall Street stacked boards of directors approving self-dealing investments, all while tuition continues to rise, student debt continues to mount, and value of a college degree declines,” she says. “The state of higher education is yet another example of austerity in America, and signals the dangerous creep of a free-market fundamentalism that thinks all institutions in society exist to enrich the bankers.”
Combine all of the above with the recent stories about hedge fund managers being exploitative sociopaths—the kind willing to inflate the price of lifesaving medicine or force elementary schools in Puerto Rico to close to make a buck—and one wonders why public institutions are doing business with them at all. Given the history of successful college divestment movements, one can easily imagine a provocative next step: campaigns that aim to force universities to stop doing business with hedge funds altogether. While they declined to give specifics since they are still in the planning phases, organizers I spoke to said just such a movement is brewing.