Campus protests called for schools to divest from Israel — Here's how that would actually work
These visuals of US students protesting the ongoing Israel Hamas conflict have been dominating the airwaves. In April, Columbia University turned into the epicenter of the student protest movement, which quickly spread to more than 100 universities, including prestigious names like Yale, Harvard, and UCLA. One of the primary demands voiced by the student protesters is across a number of college campuses all throughout the United States. Students have taken over quads and campus buildings building encampments, arguing that their institutions should divest their endowments from Israel, basically meaning divesting from weapons manufacturers that support the Israeli war effort, divesting from businesses in Israel, and divesting from businesses that do business Endowments, the financial backbone of many educational institutions, have become a pivotal point of student protest. The significance of these endowments cannot be overstated. They are the lifeblood that keeps many universities running. Simply put, a simple glance at their endowment would reveal how rich these universities are. Currently, Harvard University is leading the pack with a $49.5 billion endowment. It's important to understand what university endowments are and how they operate. These are the results of philanthropic contributions from alumni gathered over time and then invested to support some of the operating costs of the universities. Tuition only covers usually a minority of the operating costs. The majority comes from the proceeds of endowments. So in just a few weeks, college students all across the country are going to start graduating, and the second they graduate, they're going to start receiving letters and phone calls from their institution asking them to give to their endowment. What they'll do is they'll give sometimes a small amount, sometimes if they're pretty particularly wealthy, a large amount to the endowment. And what that means is an endowment manager will then take that money and invested in a variety of options, whether it's ETFs or index funds or private equity or hedge funds, and then after time, each year, spin down the returns on that. So they'll gain some returns, take some of it out of the endowment, use it towards the operating funds to fund a new generation of students who will eventually graduate. Start getting asked for money, start giving money, and the whole cycle begins again. These endowments are famously opaque. So there is a very often not any information publicly available about what is happening to these funds. And that is in fact one of the student demands as well. It's really hard to know exactly how much money of these endowments is invested in. It's hard to know for a variety. First off, endowment managers aren't stock pickers. They're not managing day trading through an E*Trade account. What they're doing is building a comprehensive institutional plan that involves Edfs, involves hedge funds, involves private equity. With all of those funds, it's difficult to know what in those funds at any given time, which companies in those funds at any given times are doing business. Corporate filings don't provide clear information on which companies have exposure to Israel because corporations can list their foreign operations under any geographic unit of analysis that they prefer. So some companies may list Israel. These are the offices we have. These are the sales we have, but they might group Israel within the Middle East and North Africa, or they might group Israel within Europe and Asia, or they might group Israel. Just as in abroad, they can choose the geographic unit of representation on which they report. There is no requirement that you report at the country or even regional level, and so that makes it very hard to understand who has exposure. Student activists, however, are taking a proactive stance by compiling a list of prominent companies engaged with Israel. For instance, students from Columbia are advocating for the university to sever ties with Google, Amazon, and Microsoft, among others. It's pretty easy to find out whether or not Amazon is providing Amazon Web Services to the Israeli government because the Israeli government announces that Amazon is providing Amazon Web Services. Ditto Microsoft and Google. Anyone who's been on the ground in Israel knows you can order a Coca-Cola or a Pepsi while you're around. I mean, the global economy is is so intertwined with the American economy that American marquee companies are nearly every. And so it shouldn't be a surprise that students are identifying companies that are engaged with Israel. Because most companies, at least those that would be in the S&P 500 or those that we think of as major, major companies in the global economy are probably doing this. Students protesting the university's investments in South Africa. When discussing if divestment works, student protesters often cite the South Africa divestment movement. In the 1980s, in this nationwide campaign against apartheid, US students convinced more than 150 universities to divest from the involved companies. Coincidentally, Columbia University, the epicenter of the ongoing student protest, was the first Ivy League university to divest from South Africa. Ask you to give us your good wishing. 30 years ago, Nelson Mandela was elected president of South Africa, functionally ending apartheid. And part of the reason why South Africa was able to achieve that massive political and social change was because students all across the world, and especially in the United States were pushing for divestment. When they pushed for divestment from South Africa, about 155 universities made some action. Very few did a total divestment like what students are asking for now. But 155 universities divested in some way from South Africa. There's no clear evidence the divestments from South Africa made any economic difference in South Africa. But there's a lot of evidence that it made a political difference that the slow drip of headline after headline after headline in the news agencies all across the world forced negotiators to the table and LED to political change rather than economic changes. So will divestment make a big economic impact on Israel? Probably not. When you divest a fund, somebody is buying it. But will it make political change? We have some evidence that it is. Just last week, both President Biden and Prime Minister Netanyahu mentioned American College protests in speeches. That shows that students have their attention. People that argue that divestment actually does work. It's generally a case of shifting hearts and minds and trying to make something morally annexable from the point of view of social norm. And what I would say here is that on the question of Israel and Palestine, that is very, very difficult, just purely on the basis of how divisive this issue is. Universities are reluctant to divest on any issue because it might lower the returns on their endowment, which would affect their ability to serve the needs of future students. If we introduce greater risk or lower returns in the endowment, there'll be less funds available to cover the tuition to cover tuition, assistance to cover the running costs of the university for students who may not even be born yet. There's a trade off between meeting the demands of the students today and our ability to meet the demands of the students in the future, which isn't being taken into account by the students who are demanding diagnos. I think divestment is a shortcut. It feels like you're doing something. It feels like you're demanding an action. Sell the shares, and we think somehow that's going to make a difference. But what we're really doing is transferring ownership to people who care less than us, and thus we should think twice about whether it really serves our purposes or serves our goals.