January 24, 2018; Boston Globe
Activists are demanding that higher education endowments, particularly big ones like Harvard and Yale, disinvest from Baupost Group, a Boston hedge fund that holds almost $1 billion of Puerto Rico’s debt.
Sam Heller, a Harvard senior and member of the college’s Student Labor Action Movement, says, “We want Harvard University to show that it values justice rather than exploitation by divesting from Baupost unless it cancels its Puerto Rican debt holdings.”
As NPQ readers may know, high risk investors, like Baupost Group, buy distressed debt cheaply, including debt from collapsing economies, expecting to be paid first from any money that would come. This pits high-risk investors against citizens, as any money that goes to the investors is taken from recovery and rebuilding efforts.
The Boston Globe’s Deirdre Fernandes writes,
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After visiting hurricane-ravaged Puerto Rico, President Trump casually said that one way to help the island would be to wipe out its debt. The suggestion sowed concern among bondholders, who had lobbied Congress hard over the years to protect their investments. Administration officials quickly backed away from that idea.
Harvard is one of Baupost’s biggest investors, with $2 billion out of its $37 billion invested there. Yale has $710 million in Baupost, according to Hedge Clippers, a New York group that scrutinizes hedge funds.
Catharine Hill—managing director at Ithaka S+R, a nonprofit that provides strategic and research advice to higher education and cultural institutions, and a former Vassar College president—notes that activists have a long history of targeting higher education endowments as a way of pressuring governments and companies to change harmful practices. Julio Lopez Varona, a member of Hedge Clippers, says higher education investments often help “set a tone.”
But Hill continues, colleges can be “resistant to lobbying by activists, arguing that they have an obligation to maximize returns to fund their educational mission.” Of course, colleges have been moved to shift investments before—most famously in response to the South African divestment movement in the 1980s, and more recently in response to the move to divest from companies that profit from the extraction, distribution and sale of fossil fuels. Activists were at Harvard on the 24th and in Yale on the 25th.
Incidentally (or not), Seth Klarman, Baupost’s chief executive, called the “Oracle of Boston” for his investment prowess, is a graduate of Harvard Business School and, according to Fernandes, “a significant donor to the university.” In fact, this year the business school plans to open up a new 1,000-guest conference and performance center: Klarman Hall. All of this begs the question—what constitutes ethical business practice for higher education nonprofits?—Cyndi Suarez