The zeitgeist of a political era is often characterized by the protests happening at universities, from Vietnam and Civil Rights in the ‘60s to Occupy Wall Street in the 2010s. My undergrad included several notable protests at UT, including “Cocks not Glocks” in 2016 and Black Lives Matter in 2020.
The headline of a protest is typically the “problem,” but protests usually publish a discrete set of demands as well. At UT, one of the popular demands is for the endowment to divest from firms activists deem problematic, such as oil companies in last year’s climate protests.
The point of endowments is to balance the interests of the present with the future. The UT system has a pot of about $45 billion — if we saved it all, current students would be disadvantaged. If we spent it all, future students would suffer. To solve this, the endowment distributes a portion of its assets every year, and the state appoints a management company, the University of Texas/Texas A&M Investment Management Company, to invest the rest of it.
Diversification suggests that UTIMCO should invest in a wide variety of assets. What is economically optimal may not be politically optimal — if you diversify your investments, there’s a larger chance of criticism.
The activists’ focus on the endowment is understandable because students are much closer to the levers of power of their own university than those of the federal government. Despite this proximity, however, the endowment is a red herring — activists would be better served focusing on other solutions.
Every divestment requires an investment from a counterparty. Changing the composition of who owns Exxon Mobil transforms little except the bank accounts where they wire dividends. Even if socially concerned investors were able to lower Exxon’s stock price, they may only be creating a bargain for another investor who doesn’t share the same values.
Even if the endowment were to be managed with political objectives, divestment may still be the wrong thing to do. Companies listen to their current shareholders, not their former ones. Ownership could position the endowment to influence its portfolio companies in more pro-social directions. For instance, in 2021, an activist firm bought shares of Exxon Mobil and used a proxy fight to force them to change their climate strategy.
The beginning of UTIMCO’s mission is to “generate superior long-term investment returns to support The University of Texas and Texas A&M University Systems.” Non-financial concerns in the endowment might worsen its financial performance. At minimum, adding constraints to an optimization problem usually does not make the solution better. Every dollar of return sacrificed for political signaling is a wasted public resource that otherwise could have funded investments in research and education.
Of course, UT’s activists are not the only ones to politicize the endowment.
“In (the) previous year, Greg Abbott announced that we must divest from all Chinese companies,” said Zoey Kaul, a recent graduate and the director of education for Students Fighting Climate Change. “We saw that something political could dictate where financial assets can be delegated.”
An apolitical endowment might be desirable, but it’s not what we have now.
The problems we protest are hard to solve, and symbolic divestments offer catharsis instead of solutions. As a student body, we should look for more implementable solutions. There are many tools for change at our disposal — starting a club, calling a congressman, volunteering for a campaign or protesting for broader policy goals.
A more charitable interpretation is that protests have many goals, and implementing practical solutions is only one.
“(With protests), we create more unity, share our message with the world further and generate more momentum for our movement to continue forward to that ultimate success,” government and plan I honors junior Arshia Papari said.
While visibility is important, perhaps the UT endowment is visible because the protesters focus on it. Other mechanisms, like encouraging financial regulations, can be just as unifying.
When attempting to facilitate change, student activists should consider whether their demands would contribute to their cause, or have unintended costs greater than the benefits.
McKinley is a Second-Year Finance PhD student from Houston, Texas.
