Tellus C-SocPhil releases new report on endowments and the financial crisis

C-SocPhil report documents social costs and systemic risks of the Endowment Model of Investing.

BOSTON — A new report, released by the Center for Social Philanthropy at Tellus Institute, demonstrates the consequences of colleges and universities placing an increasing share of their endowments into high-risk investments, including derivatives, hedge funds, private equity, commodities and other “real assets.”

During and after the recent financial meltdown, the influential  “Endowment Model of Investing,” pioneered by Harvard and Yale universities and widely emulated by other endowments and institutional investors, destroyed tens of billions in endowed wealth at colleges and universities, up to 30 percent of endowment value at some of the wealthiest schools.

It also contributed to the magnification of systemic risk in what economists and policymakers have called the “shadow banking system,” a weakly regulated, highly fragile global constellation of institutions deploying capital outside of the regulated banking system in ways that have magnified systemic risks in the capital markets.

The hardship caused by these measures has rippled out in the form of lasting job losses, stalled construction projects, and local business downturns in college communities that used to be secure havens of employment and economic resilience.

“While much attention is rightly being paid to the role of for-profit financial institutions in provoking the recent financial crisis in the weakly regulated shadow banking system, the role of nonprofit institutional investors in heightening risk in the capital markets requires much closer scrutiny as well,” said Dr. Joshua Humphreys, the lead author of the report and Senior Associate and Director of the Center for Social Philanthropy at Tellus Institute in Boston. “The data we analyze in the report make clear that the Endowment Model of Investing is broken and needs to be greatly overhauled. Endowments need to become much more resilient to market volatility, and colleges should reclaim their historical role as nonprofit stewards of sustainability, both in their investments and in their local economies.”

The report examines six privately endowed New England colleges and universities—Boston College, Boston University, Brandeis University, Dartmouth College, Harvard University and the Massachusetts Institute of Technology—as case studies for exploring deeper connections between educational endowments and their impact on our institutions, our communities, and our economy. Even after the crisis, these six schools control nearly $40 billion in endowment assets, more than 12 percent of the roughly $310 billion held in college and university endowments nationwide at the end of FY 2009. They are among the largest employers in their communities in the Boston metropolitan region and the Upper Valley of western New Hampshire and eastern Vermont.

The report raises questions of weak oversight regarding how the high-risk, high-return Endowment Model is being implemented at the schools in this study. It documents the rise of highly compensated, Wall-Street-style chief investment officers as powerful figures on college campuses. It questions colleges’ disproportionate reliance on trustees and investment committee members drawn from the business and finance sector—including the very sectors most involved in the recent economic meltdown. It also spotlights potential conflicts of interest that could arise when the investment firms of trustees from the finance industry provide investment management services to the very colleges on whose boards they serve. The report also calls for greater transparency in endowment management, especially given the substantial public subsidies colleges and universities receive in the form of property-tax breaks, tax-deductible endowment gifts, tax-exempt investment income, and low-interest, tax-exempt bonds.

The report points out that in addition to layoffs and reductions in force on campus, the sudden postponement of planned construction projects due to short-term endowment losses, most notably Harvard‘s ambitious Allston Initiative, translates into lost jobs, broken promises, and diminished opportunities for community economic development. Based solely on potential earnings from the anticipated jobs that fail to materialize from the Allston delays, the report conservatively estimates that more than $860 million in expected economic activity will be lost over the next three years. Longer delays will deepen community economic losses. The report notes that proposals to cut back educational programs and to close institutions such as the Rose Art Museum at Brandeis University have weakened community cultural development in less readily quantifiable, but no less important ways.

View the report here: http://www.tellus.org/publications/files/endowmentcrisis.pdf

C-SocPhil director speaks at Resource Generation family philanthropy retreat

Joshua Humphreys presented MRI strategies at Resource Generation’s “Creating Change through Family Philanthropy” Retreat, March 19-21, 2010, Briarcliff Manor, NY.

BRIARCLIFF MANOR, NY — The Center for Social Philanthropy’s director Joshua Humphreys, a lecturer at Harvard University and a Senior Associate at Tellus Institute, discussed proxy voting, shareholder activism and other mission-related investing and active ownership strategies at a panel devoted to “The 95% Solution — Aligning Mission, Program and Investment” at Resource Generation’s ”Creating Change through Family Philanthropy” Retreat.

The retreat took place at the Edith Macy Conference Center in Briarcliff Manor, NY, over the weekend of March 19-21, 2010.  The panel was led by Dana Lanza, the Executive Director of Confluence Philanthropy and a C-SocPhil Advisory Board member.

Resource Generation works with young people of financial wealth around the country and across the globe to align their personal value and political vision with their financial resources in order to pursue progressive social change.  The family philanthropy retreat provides an opportunity for young people involved in their families’ philanthropic giving to connect with others faced with similar issues.

C-SocPhil Director speaks to Harvard Philanthropy Study Group

Joshua Humphreys discusses Leveraging Philanthropic Assets for Long-Term Social and Environmental Impact at Harvard Kennedy School

CAMBRIDGE, MASS. — The Center for Social Philanthropy’s director Joshua Humphreys, a lecturer at Harvard and a Senior Associate at Tellus Institute, delivered a presentation today on “Leveraging Philanthropic Assets for Long-Term Social and Environmental Impact” at the Philanthropy Study Group of the Hauser Center for Nonprofit Organizations at Harvard’s Kennedy School.

Dr. Humphreys’s presentation may be viewed online here.

Formed in October 2008, the Practical Issues in Philanthropy Study Group (PSG) at Harvard Kennedy School’s Hauser Center for Nonprofit Organizations brings together students, researchers, faculty and practitioners to explore contemporary issues, controversies and challenges within philanthropy. The monthly meetings feature practitioners and researchers working in the sector. Topics include the growth of philanthropy globally, the rise of new funding and management approaches, questions around accountability and the role of intermediary organizations, and the relationship between philanthropies, the state and the private sector. 

The group is convened by Steven Lawry, a Senior Research Fellow at the Hauser Center, and a Midcareer Fellow in Philanthropy at the Hauser Center.  For more information about upcoming and past meetings, visit the Hauser Center online here.