Over the past couple of months, a series of articles published by the Detroit Free Press has exposed several controversial practices regarding the University of Michigan’s endowment and its investment/distribution. Some of the practices in question include potential conflicts of interest arising from the investment of endowment funds in large University donors, the decision-making process of how much of the endowment is annually allotted to the University and the lack of investment in businesses and funds located in the state of Michigan.
To address these issues and determine the validity of these concerns, I think it is important to better understand the purpose of the University’s endowment. Does the endowment, an $11 billion fund meant to support the University and its initiatives, exist solely for the purpose of maximizing financial returns, or does it have an additional responsibility?
According to materials provided by the University, the endowment’s mission is to create “a guaranteed, never-ending source of income to support student scholarships, professorships, innovative programs, learning opportunities and life-saving research.” In other words, it exists to earn as much money as possible in the long-run, and to pump a portion of the earnings back into the school. I found no mention of any political or ethical guidelines for where the funds are invested or of any specific types of industries they choose to support. In fact, when the Central Student Government passed a resolution urging the University to consider divesting from groups that are associated with anti-Palestinian interests, the University responded by saying they “strongly oppose any action involving the boycott, divestment or sanction of Israel … (the University of Michigan) remain(s) committed to the University’s longstanding policy to shield the endowment from political pressures,” further reiterating their non-partisan stance regarding investment decisions.
Perhaps this singular focus on financial returns is justified, as the University’s finances are heavily dependent on the endowment and its performance. According to financial statements provided by the University, the endowment contributed over $300 million to all U-M campuses this past year, about 26 percent of all University revenue. The endowment provides almost as much money to the University’s budget as is contributed by the state of Michigan. So yes, I do agree with the University’s stance that the endowment’s primary purpose is to continue to grow at high levels, at least enough to support critical practices such as providing financial aid, paying competitive salaries to attract the best faculty and maintaining our beautiful campus.
I feel it would be ignorant, though, to end the conversation here and ignore the endowment’s secondary responsibilities. The University of Michigan is a public university with the purpose of educating the future leaders of Michigan and preparing the state for future success. From firsthand experience, I can state the University consistently preaches positive values and behaviors to the student body, including direct statements by University President Mark Schlissel denouncing acts of hate and violence that occur on campus and beyond.
Money equals power and influence — a perhaps unfortunate but important truth. The University has nearly $11 billion worth of power and influence at its disposal via the endowment. Economic boycotts have the potential to be successful tools to enact change, as demonstrated by the successful divestment movement against apartheid-era South Africa in the 1980s. Positive change doesn’t just come from withholding capital from harmful movements, as investing money in struggling or capital-scarce communities has the potential to create good as well.
A close-to-home example of how investments can benefit communities can be seen through Shinola, a luxury goods retailer based out of Detroit. Shinola performs the bulk of its manufacturing and operations locally, rather than pursuing less-expensive alternatives outside of Detroit. This deliberate investment in the city of Detroit created hundreds of jobs during one of the most economically-trying times in the city’s history.
Admittedly, my experience and knowledge of investing are much less than that of the individuals in charge of our University’s endowment, and I don’t claim to possess a detailed plan about how to create the most good with the endowment funds. With this said, I do believe there are plenty of opportunities for the University to pursue its primary goal of maximizing financial returns while making investment decisions that could benefit students, the state of Michigan and society as a whole.
One potential idea of how the endowment could achieve this is investing in socially responsible funds, which make the conscious decision to not invest in companies or ventures that they feel are harmful to the world. And yes, despite popular opinion, data exists demonstrating that socially responsible funds can in fact perform just as well as their “sinful” counterparts. With the continually growing concern surrounding gun control and school shootings, the University could at the very least consider ways to leverage their investing power to put pressure on firms related to firearms manufacturing and retail.
Creating a mandate requiring a certain portion of the endowment, no matter how nominal, to be invested in projects that create growth and employment in the state of Michigan is another option. There are many legitimate financial reasons for why the University invests its money globally, but I cannot imagine the state of Michigan lacks so greatly in economic activity that the endowment cannot find more investment opportunities to support the state while keeping their investment goals intact. It may take more effort, but I believe the duty the University has more than justifies this extra time.
Perhaps even exploring the idea of using endowment dollars to provide subsidized, low-interest loans for students as an avenue for making education more affordable while growing the endowment (albeit at a slightly lower rate) is a possibility the University could consider.
The endowment’s continued growth is crucial to the future success and stability of our University. Those in charge of the endowment hold a great responsibility, making decisions that will affect students, alumni, employees of the school and many other stakeholders for years to come. I believe the responsibility of the endowment extends beyond purely financial returns though. It is certainly up for debate how much those individuals in charge of the endowment can support these initiatives while achieving their primary objective of making money for the University, but it is a topic that requires further discussion. But all else equal, if we have the option to invest our money in ventures or funds that might make our state and the world better off, it is the responsibility of those in charge to make that happen, and for the University to put its money where its mouth is.
Matthew Friend can be reached at mjfri@umich.edu.