Macalester’s investment committee will discuss implementing a policy of socially responsible investment of the Macalester endowment at the committee’s next meeting in May, according to Chief Investment Officer Craig Aase.

The investment committee guides the investment of the college’s approximately $500 million endowment. The committee is comprised of trustees and administrators of the college.

The committee added a discussion of socially responsible investment to its agenda in response to growing student concerns about the corporations in which Macalester invests, Aase said. Aase became aware of the student concerns when he met individually with students Danny Schwartzman ’04 and Sally Weivoda ’06 during the spring semester.

Schwartzman has advocated on behalf of a group that calls itself the Coalition on Institutional Responsibility, coalition member Carolyn Fryberger ’07 said.

“A lot of people don’t know anything about where the money in the endowment goes,” Fryberger said. “[The coalition] wants it to be a visible issue on campus.”

The coalition of students submitted a statement of purpose to The Mac Weekly in February in which it asked “for a change in the way the Macalester community thinks about the college as an institution and as a representation of our community values and ideals.”

“This idea that we should leave our endowment out of our ideals is absurd,” Schwartzman said.

Although he had advocated the idea of socially responsible investing for quite some time, heightened student interest in the issue prompted Schwartzman to open a dialogue between students and the college administration, Schwartzman said.

“The first real step was meetingwith [Aase] and finding out what the story was,” Schwartzman said. “The quick version is that we don’t do anything with socially responsible investing at all.”

In the 1980s, Macalester divested from corporations that operated out of South Africa in a global effort to sanction the supporters of Apartheid, and the Board of Trustees drafted a policy meant to guide investments in publicly held corporations.

The policy, unchanged since 1986, has not been an active part of the investment strategy of the endowment, Aase said.

“The primary focus of investing is on economic return,” he said.
 

How the endowment works

The endowment is held in stocks, bonds and investment partnerships, which yield an annual return that the college can use to fund the operating budget. The operating budget is the money used by the college to fund all activities and programs, including facility maintenance and staff and faculty salaries, during a given fiscal year.

The return on the endowment has been helpful in maintaining low student tuition prices and high financial aid gifts in light of rising costs in the operating budget, Aase said. The annual yield for 2003 was the highest since 1974, a sign that in the future Macalester may begin to amass one of the largest private college endowments, Aase said.

The operating budget draws its funds from three sources: tuition dollars, alumni gifts through the annual fund and a portion of the return from the endowment, Aase said.

The endowment, comprised largely of gifts from alumni accumulated throughout Macalester’s history, is distinct from the annual fund in that none of the money given is ever spent.

“You don’t spend the principal,” Aase said.

Altogether, 30 financial managers handle the investment of Macalester’s endowment, Aase said, a number that rose from six in the last decade.

There are a variety of investments that comprise the endowment, according to Aase, who provided rounded numbers to give an idea of where the money goes.

The endowment currently rests at around $500 million, Aase said. Of that, $300 million is invested in publicly traded corporations. The other $200 million is invested in U.S. Treasury Bonds and a variety of investment partnerships.

Of the $300 million, only $75 million is directly invested in corporations. An additional $125 million is invested in portfolios whose holdings are composed by three managers. Macalester then buys into these portfolios. These are called “commingled” investments.

“They are a sort of mutual fund for institutions,” Aase said.

The remaining $100 million is invested in three stock indices, which are large groupings of publicly traded corporations. Macalester invests in Standard and Poor’s (S&P) 500, the Russell Growth Index and an international index, EAFAE, said Aase.

Among the corporations that the indices hold are YUM! Brand Foods, Starbucks, Halliburton, Coca-Cola and Wal-Mart, according to investor relations documents from each index.

But ownership of these corporations through the indices is not the same as a direct purchase of stock from a corporation, Aase said. Investments through index funds do not result in the same shareholder privileges associated with a direct purchase of stock.

The identity of those corporations Macalester owns directly has been suppressed by Aase, despite student requests for a public release of information, Schwartzman said.

In response to Schwartzman’s claims that the Investment Office has been withholding information, Aase insists that there is plenty of information, and that there has been no effort to keep information secret.

“If and when we have some kind of structured process we can disclose the information,” Aase said. “But I’m not going to go outside and tack it on the door.”

For Schwartzman and the Coalition for Institutional Responsibility, the hesitancy to share the information still amounts to a withholding of information.

“There’s a benefit to [the information] being partially public,” Schwartzman said. “But it calls into question the issue of what public means …you tack it up—anything less than that is not publicly public.”
 

Possible Investing Techniques

Socially responsible investment of the endowment can take a variety of forms, but it largely comes down to screens and shareholder activism, Aase said. A screen is typically a policy that “screens”out corporations that fit a particular model, most often used to avoid investing in tobacco companies and weapons contractors, Aase said.

This approach is similar to divesting from particular corporations.

“I’ve been told and I’ve read that managers will not work with screens,” Aase said.

As for shareholder activism, a good model is Swarthmore College’s Committee for Socially Responsible Investment, said Paul Aslanian, former chief financial officer for both Swarthmore and Macalester, and currently a visiting professor in economics at Macalester.

Students at Swarthmore can be elected to a three-year term on the committee. Key members of the Board of Trustees and key administrators within the college also serve on the committee.

Students on the committee research and report on the policies of corporations in which Swarthmore holds stock and work with the Investor Responsibility Research Center, an independent research group, to identify shareholder proposals that align with the core values of the school, Aslanian said.

Swarthmore trustees founded the committee in 1998 after students brought forth concerns about Swarthmore’s investment policies, Aslanian said.

The committee began by deciding how it would approach socially responsible investing, and quickly rejected the idea of corporate screens, Aslanian said.

“If you really took screens seriously, you’d have no stocks left to invest in,” Aslanian said. “Instead we asked whether we could use our stockholder rights to make our voices heard by the proxy process.”

Proxy votes are given to shareholders based on the amount of stock held in a corporation and are used to vote for and against shareholder proposals and to approve certain decisions made by the board of directors.

“Our practice is to delegate proxy voting to managers,” said Aase of Macalester’s investment policies. However, recent changes in SEC guidelines require managers to report back to their investors and let them know how they vote their proxies, Aase said.

Aase said that he believes using proxy voting as a means of maintaining institutional responsibility is preferable to using screens.

The Coalition for Institutional Responsibility also decided to focus on shareholder activism, Fryberger said.

“I think [Swarthmore’s model] sounds like a perfectly reasonable model for proxy voting,” Schwartzman said. “A similar structure [at Macalester] would have to involve students in a central role…and be accountable to the public.”

For some students at Macalester, however, these results are inadequate.

“This is a capitalist institution,” Luce Guillen-Givins ’06 said. “We’re involved with a lot of corporations that have horrible track records.”

Guillen-Givins has been working with students on campus to investigate the ties between Trustee and Chief Information Officer of YUM! Brand Foods David Deno ’79 and Taco Bell, the fast-food group cited for violations of workers’ rights in its tomato purchasing policies.

Although she feels strongly that Macalester is involved in a harmful partnership with a variety of corporations, the college has been receptive to discussion, Guillen-Givens said.

The Board of Trustees is the governing authority over investment policies, and any changes in structure will require its active support, Aase said. The purpose of the investment committee meeting will be to discuss a range of options for socially responsible investing at Macalester.

“It won’t focus exclusively on the activist approach [but] the practical side of application,” Aase said.

Beyond the trustees’ meeting, Aase said that he is receptive to other forums on campus. He also said he recognized the need to spread more information about the way the investment process works at Macalester.

“If there’s going to be a dialogue about policy and implementation, it needs to be an informed dialogue,” Aase said.

“What’s wrong with having a brown bag [discussion] on Coca-Cola?”