Story of the Week: August 2020

“Cornell (2015) estimated these losses from potential divestment actions at five large U.S. university endowments, and concluded that, on a weighted average basis, fossil fuel divestment would cost these endowments approximately 0.23% per year”

“The available evidence indicates that universities would likely respond to a decrease in endowments’ abilities to fund spending with budget cuts. A study by Brown, et al. (2014) finds that shocks to endowments generally lead to immediate changes in payout rates from the endowment to the university budget."

“First, most major university endowments invest heavily in funds of various sorts – stock and bond mutual funds, exchange-traded funds, private equity funds, hedge funds, and so on, rather than in individual stocks and bonds. This means that, even if only a small portion of a fund’s assets are invested in fossil fuel companies, the entire fund must be sold (and some new set of assets purchased to replace it) in order to divest”.

“Factor in all the losses incurred thanks to trading costs (1.65%), compliance costs (0.56%), and diversifications costs (0.23%), and the average endowment “hole” created by divestment results in a 15.2% drop in transfers from endowment accounts to school programs.”

“...the growing use of financial markets to pursue political goals is ultimately counterproductive, and it imposes considerable ancillary costs on people who can least afford it — in this case the students who depend on the financial aid and other assistance afforded by a school’s endowment.”