Facts Matter: On Student Activism and the Endowment
Earlier this semester, a number of articles in the Yale Daily News either criticized or defended decisions made by the Yale Investment Office. The debate stems from a student-led teach-in held in early February where students criticized and questioned the University’s investment in the fossil fuel industry, the for-profit prison industry, and its holdings in the distressed debt of sovereign states.
This article doesn’t aim to debate these ambitious questions, but instead focuses on a simpler issue: activists’ obligation to understand and verify their claims. A failure to do so detracts and distracts from the points they aim to make. Furthermore, as they seek to educate the greater public on matters of importance, journalists have a responsibility to thoroughly understand and vet the topics on which they report.
A number of the recent student allegations against the Yale Investment Office have been littered with either factual errors or basic conceptual misunderstandings. Some of these have already been highlighted, namely the conflation of owning some Vanguard ETFs with owning all Vanguard ETFs, but a number have gone unaddressed. Errors like these are easily remedied by a cursory review of the topics at hand, either by the original authors or by editors at the Yale Daily News.
Central to many of these complaints is Yale’s refusal to use its endowment to support certain issues about which students are passionate. For example, the students pointed out that “spending 1.3 percent of the endowment would eliminate tuition.” But this observation leaves out a critical caveat: this 1.3 percent would need to be spent each year, and that 1.3 percent would no longer be available to generate future returns. Based on simple calculations, I estimate that if Yale had instituted such a policy in 2006, the endowment would run entirely dry by 2038. In such a case, the endowment would not only be unable to provide additional assistance but also could not fund the tuition assistance currently offered. I urge you to scrutinize these calculations (as you should all claims), which are explained in this spreadsheet and PDF.
I am not saying that these critics actually aim to eliminate tuition altogether, but their implication is that the endowment would easily be able to do so. This is simply not true. More importantly, this claim displays a lack of understanding on the difference between the value of the endowment and the income generated by it. While this covering all of tuition would only necessitate 1.3 percent of the value of the endowment, it would represent a roughly 25 percent increase in annual spending. Such an increase would not be without impact on other university spending priorities.
Students also take issue with the fees the Investment Office pays to private fund managers. This complaint could be valid; the Investment Office should look to negotiate favorable agreements with outside managers. However, their comparison of these fees to the value currently committed to tuition assistance draws a false equivalency. These two forms of spending happen on a fundamentally different level. Fees to managers determine what the net return to the endowment is, and from that net return the University then decides how to allocate money.
Consider an example. In Case A, the Investment Office places all of the endowment with a manager who charges a 5 percent fee and delivers a 12 percent return. In Case B, the Office invests with a manager who charges a 10 percent fee but delivers a 20 percent return. Case B both gives the University more money to allocate to financial aid as well as pays higher fees to managers. Is this not a better outcome for all involved?
Perhaps the investment office should make an effort to find a more efficient fee versus return structure. However, this is neither the argument that students are making nor one that many would, especially given that the endowment has consistently delivered net returns well above its peers.
Undoubtedly, there are serious ethical questions that arise when wielding such a large sum of money, especially when doing so on behalf of a non-profit university. As a University we should certainly be cautious not to clear cut forests or disrupt the way of life of Native Peoples in the name of higher returns. But when many critical claims are riddled with both conceptual and factual errors, it is hard to take them seriously. Moreover, journalists at the YDN have an obligation to fact check these claims prior to publishing, especially given their role in educating the public.
Ultimately Yale students have made David Swensen’s defense of the Investment Office’s decisions easier. The activists’ inaccurate claims leave the door open for Swensen to focus on correcting factual issues rather than the thrust of the claims. When activists hold themselves to a higher standard, they force those in power to consider and address their legitimate accusations. When they instead have numerous factual and conceptual errors, they allow authorities to avoid discussing core issues and to easily discredit their arguments.