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Yale opens door to exit private funds in social investment shift

Oct 11 2018 21:17
Janet Lorin, Bloomberg

Yale University, facing pressure to address ethical issues like gun violence, may consider exiting private equity and hedge fund investments that it deems socially irresponsible.

Yale, which has about 60% of its $29.4bn endowment in such alternative assets, made the statement as part of its ethical investment policy. The Ivy League school said it will work with its outside managers to adhere to its standards.

"In addition to attempting moral suasion, Yale might be able to avoid certain investments through ‘excuse’ provisions, which are part of some private equity funds, or work with the manager to liquidate the relevant position," according to the updated policy posted October 10 on its website.

"As a last resort, the university could disassociate from the investment manager by selling the fund interest to a secondary buyer."

Students across the country have demanded schools reconsider investments in everything from polluters to private prisons. But limited partners like Yale in private equity funds don’t have influence over particular investments and typically need permission from general partners to exit early, which can come at a significant discount. Hedge fund investments can be locked up for several years.

Yale’s investment office has addressed several hot-button issues as part of its ethical investment policy.

Private prisons

The growth of private prisons have raised concerns about the treatment of inmates. The university said on the website that “divestment is not warranted” under its guidelines. But if Yale were a shareholder, it would "support reasonable, and well-constructed shareholder resolutions related to improvements in the corporate social responsibility of private prisons."

Activists have also called on hedge funds to offer debt relief for Puerto Rico after the devastation caused by Hurricane Maria. Yale’s advisory committee on investor responsibility concluded earlier this year that divestment from Puerto Rican debt isn’t warranted when an investor is abiding by the legal framework in which the debtor’s interests are appropriately represented, according to the website.

Yale trustees also adopted a policy prohibiting investment in assault weapon retailers and any retail outlets that market and sell assault weapons to the general public.

Yale said it’s easier to have an impact on publicly held stocks that aren’t in co-mingled funds than private investments.

"I think the investment office is going to go the extra mile," Jonathan Macey, a Yale law professor who chairs the advisory committee on investor responsibility, said in an interview.

Past positions

The university has taken positions on issues in the past, from apartheid in South Africa to climate change. In 2016, Yale said it sold less than $10m in investments in fossil-fuel companies that were "inconsistent with our principles" of a sustainable environment.

The university, based in New Haven, Connecticut, has the second-largest endowment in higher education, and its longtime chief investment officer, David Swensen, holds considerable sway in the investment world.

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