Investing in transparency: The ethics of Georgetown’s portfolio

“Something that should have happened, had to happen, has happened. Georgetown will divest,” read the opening line of the cover editorial in the Sept. 23, 1986 issue of the Voice. That week, the University announced its plans to pull its money out of American companies that profited from business in apartheid-era South Africa. The decision came as the much-awaited result of a three-year long student struggle for divestment. Georgetown’s holdings, then valued at $28.6 million, represented 16 percent of the endowment of the time, according to the 1986 “Honor Roll of Donors” issue of Georgetown Magazine.

Student groups like the Student Coalition Against Apartheid and Racism held candlelight vigils, drafted numerous petitions, and staged a day-long apartheid simulation in which blacks were given priority in everything from classes to the lines at Vital Vittles. The campaign culminated in a week-long occupation of White-Gravenor in April 1986 that resulted in the arrest of 35 students. Despite the escalating pressure from protesters, the University had refused to take any action for more than three years.

Even though the injustices perpetrated by the South African government by 1986 were well-documented and highly publicized, an administrative body already existed to ensure the endowment was being invested responsibly. The Committee on Investments and Social Responsibility was established in 1970 in response to campus concerns about apartheid. Although it had student representation—one from each of the Main, Medical, and Law campuses—the extent of its power, at the time, was unknown, as no University response formally acknowledged their contributions.

This CISR still exists, though its role and membership has evolved over the years.  In February 2012, the CISR’s membership expanded and its mandate broadened to include considering the concerns of the campus community and evaluating whether they merit consideration by the Board of Directors, which then makes the ultimate decisions on University investment practices.

Despite its name, however, the Committee on Investments and Social Responsibility has little to no say regarding how the endowment is invested. The Committee is still in the process of being restructured, and, although this might change, it has never had access to the list of firms in which Georgetown invests. The Committee also cannot force the Board of Directors to invest in any socially responsible alternatives. In fact, as of now, no one outside of the Investment Office or the higher echelons of University leadership has access to the list of investments. The University’s opaque investment practices make it impossible for the Georgetown community to have agency or respond to any harms that may be being committed with student and alumni money.

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Georgetown University’s endowment consists of gifts made to the school by private donors. This “pooled endowment” totaled about $1.1 billion as of June 30, 2012. This part of the endowment is different from the approximately $500,000 managed by the Georgetown University Student Investment Fund and the Graduate Investment Fund, which were created through donations specifically granted to serve as educational tools for students.

“Our pooled endowment is invested in commingled funds designed for institutional investors,” reads a document compiled by the Investment Office which outlines how the office functions. The Investment Office takes the money in the pooled endowment and, instead of choosing stocks or securities directly, invests the money in larger funds handled by different money managers who then use their specific niche knowledge to invest Georgetown’s money as they best see fit. “We maintain relationships with … the very best money managers that are out there for Georgetown to have our money with,” said Alex Douglas (SFS ‘03), an analyst at the Georgetown Investment Office since 2007.

“Part of that job is not only finding the best managers, but finding managers who share our values [as a University],” Douglas explained. According to the Investment Office, if Georgetown decides it is uncomfortable with its managers or questions specific investment decisions they’ve taken, the manager is dismissed and Georgetown’s portion of the fund is returned.

Nevertheless, the primary investment objective of the University is “to achieve the highest long-term total investment return on investment assets that is compatible with the University’s risk tolerance,” according to the Principles and Operating Guidelines for the CISR.

Although Georgetown seeks to select the best managers for their endowment, as Douglas explained to the Voice, once it enters a fund, money managers do not receive much day-to-day interference from the University. An order to divest would be a strong statement to make to a manager. A fundamental focus on high returns explains why Georgetown imparts so much responsibility to these specialized money managers, and why they, in a sense, give up direct control of the endowment’s funds.

This method of investment also ties the University’s hands legally. According to the Investment Office, when Georgetown enters into an investment fund, legal restrictions govern when and how the University can remove its money. Since Georgetown is not the only investor in a fund, pulling out unexpectedly can have serious detrimental impacts on the other investors in that fund.

Douglas assures that Georgetown’s investment practices are common among peer institutions, and that “Georgetown is appropriately transparent compared to its peers.”

However, while the Investment Office can keep a real-time eye on the firms in which Georgetown’s money is invested via the managers, it cannot share this information with the greater Georgetown community. According to the document released by the Investment Office, “Those funds [managers] consider their portfolio holdings proprietary information that gives them an edge over competitors.”

“It is not in Georgetown’s best interests, nor is it appropriate, to be putting all our cards on the table in terms of what our managers are holding,” Douglas said.

It is unclear whether the CISR, which has been handled by the Investment Office since it was established in 2004, will have access to information on holdings. “To a certain extent, some of these details [including how much information will be necessary for the committee to do its job] have to be determined when the committee meets for the first time,” Douglas said.

Despite multiple requests, the Investment Office declined to share the names of the private money managers the University hires to handle the pooled endowment.

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In February 2010, Students for Justice in Palestine addressed an open letter to President DeGioia urging the University to investigate its investments to ensure that Georgetown was not investing in companies profiting from violations of international law and abuse of human rights, particularly those involved in the Israeli occupation of Palestine. SJP provided a list of specific companies involved, shares of which they gauged an institution of Georgetown’s size likely possessed.

“At the time, Georgetown’s response was not particularly helpful. The worst moment was when … we were [sure] that Georgetown’s investments weren’t in line with its Jesuit values and ethical values, and the Investment Office actually … took the sections on their website about Jesuit values [off],” said Sam Geaney-Moore (SFS ‘12), an SJP member heavily involved at the time. “That to me was basically the whole point, because it was basically Georgetown admitting ‘We’re not investing in an ethical manner.’… It was a pretty remarkable strategic decision, I would say.”

In 2008, the Investment Office worked with the student funds and their investment managers to confirm that Georgetown’s investments had absolutely no connection to the Sudanese conflict. In 2010, no such assurance was provided to SJP.

“What we found in the divestment campaign was that … basically, the University didn’t have any mechanisms for making sure that investments were socially responsible,” Geaney-Moore recounted. “Officially speaking, there was a committee on socially responsible investing, but the truth was that it hadn’t met for years and that the Chief Investment Officer [at the time, Larry Kochard] just wasn’t interested in, you know, paying attention to those issues.”

According to Geaney-Moore, the SJP then shifted its campaign from divestment to focus on increasing the transparency of University investment practices. This shift in the direction that student pressure was applied likely spurred the University to reevaluate its policy with regard to Socially Responsible Investment.

“In response to … continuing student queries over the years, Georgetown decided to take a look at … how are we doing with regards to [socially responsible investing], what are our current policies, and how does that compare with our peers,” Douglas said. This review took the form of a working group comprised of University officials, administrators, and faculty that convened over the course of 2010 and 2011.

Eventually, the working group recommended that the University expand the mandate of the CISR, a measure that was then approved by the Board of Directors last February. The changes to the Committee were significant—the membership was broadened to include two more members at large designated by the President, as well as one student representative from the Law Center, one undergraduate student appointed by GUSA, one graduate student appointed by the Graduate Student Organization, and another to represent both student investment funds, GUSIF and GIF.

In the recent past, the only student representatives had been one each from the student investment funds because, according to the Investment Office document, the Committee “was limited to reviewing and making recommendations with regard to the voting of proxies for the two student funds.” In other words, a narrower mandate only allowed the CISR to determine how GUSIF and GIF would vote at annual shareholder meetings regarding issues that individual shareholders had brought to the table that year. It had no say, for example, as to whether there were value conflicts with the companies themselves.

The CISR’s new specific responsibilities are outlined in the principles and operating guidelines for CISR—the Committee is responsible for initially evaluating proposals “by any member or group within the University community regarding investment responsibility concerns,” for determining “whether any such proposal has a valid basis, and … whether any such proposal merits further consideration by the Board of Directors,” and then for making recommendations to the Board “as necessary.”

What the group cannot do is just as explicit. “[The CISR] shall not address the day-to-day operations of the University, nor recommend that the Endowment Fund be invested specifically to remedy social injustices.”

Apart from engaging in shareholder advocacy or refraining from investing in companies with questionable practices, “A third way [to do SRI] is to actually try to invest in corporations that are particularly related to social justice,” said Eli McCarthy, an adjunct professor with the University’s Program on Justice and Peace.

“If you have a bunch of money—and that’s a kind of power—and you know social injustices are occurring, then I think it behooves us to make some inroads at putting our money towards remedying [them]. Our investments are not just … neutral practices.” McCarthy gave the example of Fordham University, one of Georgetown’s peer Jesuit institutions, which has approved about $250,000 of its endowment to be invested in the community.

The committee is still in the process of materializing for the academic year, but its first meeting is scheduled for later in the fall semester. Dan Solomon (SFS ‘13), GUSA’s appointee to the CISR, has firm intentions to establish credible accountability for the committee. “What I’m looking to do, basically, is to make the committee’s efforts as transparent as possible,” Solomon said. He gave examples of how he intends to include students in the investment process, such as by holding town halls for students to voice their concerns.

GUSA Vice-President Vail Kohnert-Yount (SFS ‘13) has high hopes for Solomon, who was chosen for his background in social justice activism as the former national student director of Students Taking Action Now: Darfur. “We’re very, very confident that he’s going to…have the tenacity, and the persistence, and the knowledge to really make the most of his position and make sure that the Committee remains sustainable,” Kohnert-Yount said.

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As a Catholic and, specifically, Jesuit university, Georgetown holds itself to a standard of adherence to socially responsible investment practices, as well as those which concur with its role as an educational institution.

Student investment groups espouse similar values. “Education is the second part of our two-part mission, the first being generating returns for the University,” wrote GUSIF Chief Executive Officer Mark Vather (MSB ’13) in an email.

GUSIF, which was founded in 1997, invests $200,000 for the endowment and $400,000 for the Alumni Association. “We invest this portion solely in equities,” Vather said.

According to Douglas, this type of investment would allow the student funds to easily divest from any companies if they so wished simply by selling the securities in question, unlike the process for the pooled investment, which is more complicated. In fact, the Investment Office specifies that for the pooled endowment, it can’t say “divestment” because it does not hold securities directly.

“GUSIF has become more and more socially conscious. In fact, we have most recently expanded our natural resources group to include renewables,” Vather wrote in an email to the Voice.

However, there is no one specific criterion for a company to be labeled “socially responsible. “Our portfolio is subject to the discretion of students with a host of interests and viewpoints, and also range in levels of social responsibility based on the standards applied,” he explained. “Integrity is one of our core principles.”

Like the Investment Office, neither GIF nor GUSIF makes public the specifics of their investments. Vather lists several reasons for this, including their duty as a fiduciary.

“We have been advised to keep investments private by faculty and University,” he said. “[It is] general industry standard to keep all information proprietary” due to the competitive nature of financial investments.

“Sorry if this seems like it is not transparent,but the very nature of disclosing investments essentially undermines the reason to make the investment,” Vather wrote.

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The Georgetown community has high expectations for involvement of the University community in the newly revamped CISR, with its broader membership and expanded mandate, but some students remain uncertain regarding the level of information to which it will have access.

“Transparency is the key issue on endowment ethics at any University,” Geaney-Moore said. “Until there’s some transparency, until that information can be obtained … there’s just never going to be any progress.”

It took more than three years of non-stop organizing, campaigning, and protesting, with students risking serious punishment, for the administration to let go of its holdings in South Africa in 1986.  Though the Committee may have stronger influence in theory, Kohnert-Yount remains skeptical. “This committee isn’t going to solve all our problems,” she said.

To ensure that the changes have the desired effect, Kohnert-Yount emphasizes the need for students to rally those in the community who genuinely care for the integrity of our University’s investments.

“Students still have to be vigilant, and students still have to care about what the University is doing with its financial resources,” she said. “It’s not just going to be one person on the committee that’s going to make Georgetown a socially just place. It’s going to be the tireless work of a lot of student activists, faculty, Jesuits—those kinds of activists—to make change.”