The school of bad investment
David Hancock
Issue date: 2/8/07 Section: Opinion
Last week, WSN reported that NYU received an unflattering C on its College Sustainability Report Card. Why? Because we refuse to tell anyone how we spend our money. This lack of financial transparency has implications far worse than getting bad-mouthed by a bunch of Massachusetts philanthropists. NYU has been allowed to poorly invest our endowment over the last few decades, causing the school to perform worse financially than almost all other schools with an endowment over $1 billion. We, the students of NYU, have been forced to bear the responsibility for this poor financial management by paying skyrocketing tuition rates.
The breakdown of the Sustainability Report Card issued by the Sustainable Endowments Institute, a project of the Rockefeller Philanthropy Advisors, is simple. NYU received good marks in the categories of administration, climate change and energy, as well as food and recycling - all things to be proud of. But the university received F's for endowment transparency and shareholder engagement, and a C for investment priorities. This total lack of transparency regarding the investment of our now $1.77 billion endowment means there is no way to tell whether we are investing in sustainable companies or taking an active role in promoting sustainable corporate practices.
Michael Alfano, NYU's executive vice president, responded to the report's criticism by saying NYU didn't want to politicize its endowment or subject it to "limitless discussion on which a consensus might never be reached." That seems like it could be a fair assertion. NYU is, after all, a very big place with lots of people who have conflicting ideas about everything. But a quick glance at the policies of other colleges and universities proves Alfano's comments have no merit.
Dartmouth University, Purdue University, the University of Texas and Williams College all received A's for financial transparency. Columbia University, our northern nemesis, has the Advisory Committee on Socially Responsible Investment that advises the university on environmentally sustainable and socially responsible ways to invest its money. Clearly, other prestigious institutions have decided it's feasible to promote transparency and responsible investment, without having endless debate engulf their campuses. Why hasn't NYU?
There was another front-page story in WSN about Princeton University's planned tuition freeze. The WSN editorial board was right to point out that Princeton was only able to do this because its endowment is an impressive $13 billion. Furthermore, Princeton's massive endowment actually grew by 19.5 percent last year. NYU, with its much smaller endowment and much smaller rate of return, is simply unable to cap tuition.
But why is NYU so far behind its Ivy League competitors?
"The story of NYU's endowment management over the past two decades vividly illustrates the dangers of implementing poorly founded investment strategies," said David Swensen, chief investment officer at Yale University.
In 2005, NYU's endowment had a 6.8 percent annual return, ranking 50th out of 56 schools with endowments over $1 billion. This embarrassing showing is nothing new for NYU, as Swensen explains: "Had the institution's results simply mirrored college and university medians [from 1982 to 1998], NYU's endowment in 1998 would have been nearly $1 billion larger than the actual level of $1.3 billion."
True, last year NYU's endowment actually grew by an impressive 14.6 percent, peaking at nearly $1.8 billion. It's important to note, however, that this increase is not due to spectacular returns on the investment of our endowment. Instead, it's due to the university's massive fund-raising drive that raked in approximately $400 million last year. Fund-raising, it seems, is one thing this administration knows how to do well.
What can we conclude from this? We could use our nearly $2 billion endowment to invest in environmentally sustainable and socially responsible businesses, while promoting these practices through institutional shareholder power, as other prestigious schools have done. Instead, NYU has decided to adopt none of these policies. If that weren't disappointing enough, the university has made terrible investment decisions. The result of this poor financial management is rapidly increasing tuition and greater financial hardship for students.
Secrecy surrounding the university's endowment and investment practices hasn't translated into more money for the university or its students. If NYU can't effectively manage its investment portfolio behind a cloak of secrecy, why not make this information public? Additionally, why doesn't the university create an advisory committee on socially responsible investment, like Columbia? These proven practices would submit NYU's investment decisions to responsible oversight and promote sustainability and social responsibility. We pay more than $40,000 a year to attend this school. It's high time we told the administration to start acting like other schools and stop throwing it away.
David Hancock is a contributing writer for Washington Square News. E-mail him at opinion@nyunews.com
The breakdown of the Sustainability Report Card issued by the Sustainable Endowments Institute, a project of the Rockefeller Philanthropy Advisors, is simple. NYU received good marks in the categories of administration, climate change and energy, as well as food and recycling - all things to be proud of. But the university received F's for endowment transparency and shareholder engagement, and a C for investment priorities. This total lack of transparency regarding the investment of our now $1.77 billion endowment means there is no way to tell whether we are investing in sustainable companies or taking an active role in promoting sustainable corporate practices.
Michael Alfano, NYU's executive vice president, responded to the report's criticism by saying NYU didn't want to politicize its endowment or subject it to "limitless discussion on which a consensus might never be reached." That seems like it could be a fair assertion. NYU is, after all, a very big place with lots of people who have conflicting ideas about everything. But a quick glance at the policies of other colleges and universities proves Alfano's comments have no merit.
Dartmouth University, Purdue University, the University of Texas and Williams College all received A's for financial transparency. Columbia University, our northern nemesis, has the Advisory Committee on Socially Responsible Investment that advises the university on environmentally sustainable and socially responsible ways to invest its money. Clearly, other prestigious institutions have decided it's feasible to promote transparency and responsible investment, without having endless debate engulf their campuses. Why hasn't NYU?
There was another front-page story in WSN about Princeton University's planned tuition freeze. The WSN editorial board was right to point out that Princeton was only able to do this because its endowment is an impressive $13 billion. Furthermore, Princeton's massive endowment actually grew by 19.5 percent last year. NYU, with its much smaller endowment and much smaller rate of return, is simply unable to cap tuition.
But why is NYU so far behind its Ivy League competitors?
"The story of NYU's endowment management over the past two decades vividly illustrates the dangers of implementing poorly founded investment strategies," said David Swensen, chief investment officer at Yale University.
In 2005, NYU's endowment had a 6.8 percent annual return, ranking 50th out of 56 schools with endowments over $1 billion. This embarrassing showing is nothing new for NYU, as Swensen explains: "Had the institution's results simply mirrored college and university medians [from 1982 to 1998], NYU's endowment in 1998 would have been nearly $1 billion larger than the actual level of $1.3 billion."
True, last year NYU's endowment actually grew by an impressive 14.6 percent, peaking at nearly $1.8 billion. It's important to note, however, that this increase is not due to spectacular returns on the investment of our endowment. Instead, it's due to the university's massive fund-raising drive that raked in approximately $400 million last year. Fund-raising, it seems, is one thing this administration knows how to do well.
What can we conclude from this? We could use our nearly $2 billion endowment to invest in environmentally sustainable and socially responsible businesses, while promoting these practices through institutional shareholder power, as other prestigious schools have done. Instead, NYU has decided to adopt none of these policies. If that weren't disappointing enough, the university has made terrible investment decisions. The result of this poor financial management is rapidly increasing tuition and greater financial hardship for students.
Secrecy surrounding the university's endowment and investment practices hasn't translated into more money for the university or its students. If NYU can't effectively manage its investment portfolio behind a cloak of secrecy, why not make this information public? Additionally, why doesn't the university create an advisory committee on socially responsible investment, like Columbia? These proven practices would submit NYU's investment decisions to responsible oversight and promote sustainability and social responsibility. We pay more than $40,000 a year to attend this school. It's high time we told the administration to start acting like other schools and stop throwing it away.
David Hancock is a contributing writer for Washington Square News. E-mail him at opinion@nyunews.com
Viewing Comments 1 - 2 of 2
Tom Wysmuller
posted 2/08/07 @ 8:55 AM EST
I respectfully take strong issue with David Hancock's assertion that "...a quick glance at the policies of other colleges and universities proves Alfano's comments have no merit. (Continued…)
Melocoton
posted 2/08/07 @ 10:34 AM EST
God forbid that university administrators and investment officers actually be held publicly accountable to the people they (supposedly) serve. Wouldn't want to "distract" them with oversight!
"Clearly, other prestigious institutions have decided it's feasible to promote transparency and responsible investment, without having endless debate engulf their campuses. (Continued…)
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