Student body demands transparency in investment


By Bryann DaSilva

A group of concerned students at the Harvard Kennedy School (HKS) are mobilizing to raise awareness about the ethical consequences of the University’s enormous endowment.

The Harvard University endowment, at over $32 billion, is greater than the gross domestic product (GDP) of around 90 countries. It is far greater than the endowment of peer institutions in the country – the closest competitors are Yale and Stanford at around $19 billion each. It is invested worldwide in domestic and foreign equities, emerging markets, private equities, real estate, bonds and the like.

And very few people know how it happens.

The Harvard Management Company (HMC) was created in 1974 to manage the endowment and assets of the University, and has recently come under fire for its investment strategies. The endowment has been linked to ethically-suspicious investment sectors including weapons production, environmentally-unfriendly energy and labor-exploiting manufacturing.

The student body appears to have two main concerns with the HMC. One is the lack of transparency concerning exactly which companies the HMC invests in.

“HMC is notoriously difficult and opaque to negotiate with,” said MPP’14 student Casper ter Kuile. Indeed, much of the investment strategy is invested in private companies, and the students paying the tuition that ultimately comprises this endowment don’t know what those companies are. If students know of only a small percentage of the investment strategy, and even that portion reveals ethical dilemmas from labor force exploitation to environmental degradation, the student body is bound to be suspicious.

The concern is that an inability to criticize the HMC’s investment practices takes away the student body’s right to “negative screening.” Negative screening is avoiding socially problematic investments, like tobacco, deforestation and arms manufacturing.

Another concern is a lack of any sort of initiative regarding corporate social responsibility. Peer institutions make explicit efforts to invest in socially responsible ventures, an example being Brown University’s Social Choice Fund. These funds intentionally invest donations in socially responsible corporations that seem to do some good in the world, typically called impact investing.

This is also called “positive screening.” Positive screening is the intentional investment in things that look at not only the financial return on investment but also positive social returns, like green technology. Critics who say that these ventures are less profitable than purely financial investments are pointed toward the nearly $30 trillion currently invested by signatories of the United Nations Principles of Responsible Investment. “These are serious money managers like private equity firms, trying to make money under these principles because they know they can still make money while they are investing responsibly,” says ter Kuile.

The undergraduate student body has taken significant steps toward a more responsible endowment. Last spring, they created The Fair Harvard Fund, which seeks to encourage the HMC to establish its own social choice fund. This student organization has raised close to $12,000 to be appropriated to socially responsible investments once Harvard creates its own social choice fund. The College is also in the midst of voting on a referendum asking the University to establish this fund.

The HKS student body is in a particularly unique position when it comes to investments of the endowment. “A school committed to public service”, says ter Kuile, “has a special responsibility to make sure that it makes money in a socially responsible manner.” But HKS has little say in the matter.

Unlike the Harvard Business School, which has taken the responsibility of managing and investing its endowment, HKS funds are managed by the HMC. In a recent conversation with The Citizen, Dean David Ellwood stated that HKS has no authority on how its endowment is invested. “We are one piece of a much larger endowment” whose dividends are allocated proportionately. “If they make more money, I have more money for financial aid. I have more money for better teaching and so forth.”

While the Kennedy School has a special interest in socially responsible investments, it lacks the authority to make them. To some, this may not be all bad. While it may be important for students to make these determinations, it may be best for the Kennedy School to avoid making political statements. Dean Ellwood noted that there are “many situations in which people have very strong views that something that is going on by one company or another is inappropriate, immoral.”

Socially responsible investments are attractive to Kennedy School Students, but the Dean offers a gentle reminder of why institutional policy should not always take political positions. He recalls a quote from HKS alumnus and Brigadier General Charles Hooper: “West Point was my Sparta. The Kennedy School was my Athens.”  The Dean continues: “To me, the Kennedy School is where we talk about ideas, where we think through what the issues are, where we train people to act – and thereby, that’s how we lead.”

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