Political activists set their sights on Michigan State University last fall.
Their objective: Push the school and a handful of other institutional investors to divest from a Renaissance Technologies LLC fund. The reason: The firm’s then co-chief executive officer, Robert Mercer, provided funding to “several white supremacist organizations like Breitbart,” according to an online petition.
The pressure was more intense than usual but still … manageable. MSU Chief Investment Officer Philip Zecher says he received a few dozen emails urging the $2.7 billion endowment to pull its $50 million investment from the quantitative fund. Students, alumni, and others posted on social media and started a petition at Change.org.
On Nov. 2, Mercer announced he would step down from his leadership role at Renaissance, saying in a letter to staff that he considered discrimination on the basis of race to be “abhorrent.” Less than two weeks after the campaign began, the push at MSU abruptly stopped.
Resolving divestment campaigns isn’t always going to be as easy. Calls continue for colleges to divest from fossil fuels and for pension funds to sell out of gun-related investments. After three members of the California State Teachers’ Retirement System were killed in the Las Vegas mass shooting in October, the state’s treasurer called for the pension system to divest from retailers and wholesalers that sell firearms and accessories such as bump stocks. And following the shooting at Marjory Stoneman Douglas High School that killed 17 in February, some Florida teachers were surprised to learn that their state retirement funds are invested in firearms makers. It’s only a matter of time before institutions will be asked to drop investments over other matters, such as opioids or debt in Puerto Rico.
Anticipating that he would face other divestment campaigns, MSU’s Zecher started in December to articulate criteria for handling them. Before recommending that the school strip an investment from the portfolio, Zecher would consider four tests. First, a campaign must have a clear and defined target. Second, it needs broad-based agreement across the school community on the moral imperative to divest. Third, there must be a case for taking action, which could affect performance, to achieve the desired outcome. Fourth, it should be clear that not being invested is better than not having a voice. That criterion follows how BlackRock Inc. is engaging the companies it invests in to become more socially responsible. “If we have a voice at the table, we need to make sure we’re acting in a socially responsible way as corporate owners,” Zecher says. “I’m looking at ways the university can better do that going forward, such as how do we vote proxies.’’
Income from MSU’s endowment, Zecher notes, provides critical support for many students. “If divesting could impact that support, we need to set a high bar,” he says. Zecher, 50, who earned a doctorate in nuclear physics at MSU, started as the school’s first CIO in December 2015.
(Michigan State, meanwhile, has itself faced upheaval after a physician affiliated with the school, Larry Nassar, was sentenced to prison for abusing young female athletes, including members of the U.S. Olympic gymnastics team. MSU’s president stepped down in February.) The problem with divestment, of course, is that it can work against the main purpose of pensions and endowments: making money.
Harvard’s $37 billion endowment, the richest in higher education, is often asked to shed certain investments. The school’s outgoing president, Drew Faust, has described the endowment as a resource, “not an instrument to impel social or political change.” The head of Stanford’s $27 billion endowment in March also said the school doesn’t use its fund to achieve social outcomes.
And the risk of losing money is real. The California Public Employees’ Retirement System rarely divests unless mandated to by the state legislature. In 2000, though, the pension fund voted to divest from tobacco for internally managed portfolios and use tobacco-free benchmarks for public equity and debt holdings. The pension system also required outside managers to accept tobacco-free benchmarks.