What is the Yale Endowment?
An endowment is an ongoing "pot of income" for a "non-profit" organization. Established in 1718, Yale’s endowment consists of money donated to Yale, as well as money Yale invests. Because of its status as a university, Yale is considered a non-profit by the legal definition.
In short, Yale has a very large endowment. Yale's endowment is currently $30.3 billion. This is the second largest university endowment in the world and is larger than the GDP of 87 countries. For comparison, the City of New Haven's yearly budget is $556.6 million. The endowment's daily earnings were approximately $9 million a day in 2018-2019. Crucially, what isn't included in the Endowment is property, tuition revenue, sports (!), and Federal and State Grants.
The endowment funds are designated for the long-term funding of University operations, with the majority of funds going towards “undesignated” expenses, “miscellaneous specific purposes,” and professorships. The remaining quarter of the endowment is designated for financial aid, maintenance and books.
The graphic on the left depicts the Operating Budget Revenue for the Fiscal Year 2017. The graphic on the right depicts the breakdown of how the endowment is intended to be spent.
The present Yale endowment cannot be understood without its history. In Craig Steven Wilder's "Ebony and Ivy: Race, Slavery, and the Troubled History of America's Universities," he wrote "Philip Livingston's generous donation to Yale College occurred at the height of his involvement in the slave trade. Hence, profits from the slave trade funded the endowment of Yale's first professorship."
An understanding of the Yale Endowment's management is crucial for making change. The Endowment managed by the Yale Investments Office, run by Chief Investment Officer David Swensen. Swensen is Yale’s highest paid employee. In addition to having served on President Obama's Economic Recovery Advisory Board, he is also a major figure in the world of university investing and his investment strategy (called "The Yale Model") has tremendous influence.
Yale's Endowment is highly influential. Due to the structure of the "Yale Model," Yale's investment returns are 11.8% over the past 20 years. This is the highest return out of all Ivy League schools, with the average return for universities being only about 6.8%. The endowment model has been adopted by over 100 other universities, including Harvard, MIT, UPenn, and Princeton.
Over time, the Yale Endowment has shifted from investments largely in US stocks and bonds to "non-traditional asset classes," such as private equity, foreign equity, and real-estate capital. In the 1980's, the ratio of investments in US stocks and bonds to non-traditional asset classes was 8:2. It is now 1:9.
The graphic above depicts this transformation from mostly investment in "domestic equity" in 1986 to mostly "non-traditional asset classes" in 2020. These non-traditional asset classes are linked to things like fossil fuels and Puerto Rican debt.
Because of its large investment in private equity, Yale spends more on private equity fees than other universities of its size. It spends more than double the amount it spends on tuition assistance on private equity fees.
While Yale is spending exorbitant amounts of money on private equity feeds, if Yale spent just 1.3% more of the endowment on tuition, tuition could be eliminated for all students. If just 2% more of the endowment was spent, Yale could contribute New Haven's entire yearly budget.
Yale has consistently refused to be transparent about its investments. We have, however, been able to uncover a fraction of their investments through analysis of SEC Form 13F, which, for any company or university, can be found at: https://www.sec.gov/edgar/searchedgar/companysearch.html (U.S. Securities and Exchange Commission - Company Filings). On this form, Yale has to report publicly traded stocks, closed end funds, and ETFs that value over $200,000.
We also analyze Yale's IRS 990 forms. This is a big form that all organizations exempt from income tax have to submit once per year. There are lots of parts to the form, the most relevant to our purposes being Schedule R. Schedule R is used to provide information on “related organizations”. There are lots of ways for an organization to be “related” to Yale; however, most of the companies in the Schedule R form almost fully controlled by Yale. This form is how we find Yale endowment money controlled by external fund managers. Yale creates shell companies and puts a few hundred million dollars into them, and then fund managers manage those shell companies. This process is purposefully opaque.
Analysis of these forms reveals that Yale's holdings in fossil fuel companies total at least $454 million. This is summed up from the $352 million invested in Luxiver LP, $102 million in Merit Energy Partners and ARC Financial (specialty oil and gas investment managers), and $4.3 million invested through index funds. This is only the beginning. It also allowed us to uncover facts like this one: in the 2015-2016 fiscal year, Yale directly invested $230 million in Antero Resources, just as Yale researchers warned of the health risks with fracking and 3 states banned fracking.
Yale's investment in Puerto Rican debt is more complicated and took digging to uncover. Essentially, Yale's 5th largest investment manager, Baupost Group, holds at least $911 million in COFINA bonds (bonds issued by a government-owned corporation in Puerto Rico) and previously sued Puerto Rico to be paid back before other investors. A few of Yale's other investment managers, Carmel Asset Management and Fortress Investment Group, are also connected to Puetro Rican debt in this way.
YALE HAS THE RESOURCES, POWER, AND RESPONSIBILITY TO LEAD. By cancelling holdings in Puerto Rican debt and divesting from fossil fuels, Yale can influence an entire industry to do the same.