Are university protestors asking for the wrong thing?

Pro-Palestinian protests on campuses across the country are demanding divestment from companies with ties to Israel.

Welcome back, readers. I’ve been following the college campus protests across the country, but this is not a newsletter about politics, per se. One of the things I’ve been thinking about is the almost universal demand emanating from these protests: That universities divest from companies with ties to Israel.

Divestment is an easy thing to gravitate toward for those demanding change because—at first glance—it looks like a real financial consequence. But except in rare cases, it’s the investor who has to navigate the consequences of pulling money from an investment while the intended target doesn’t feel a thing.

Why divestment is ineffective

For the past few weeks, student-led protests have targeted university endowments. The funds, which can total in the billions of dollars, are not always transparent with their investments and students want universities to reveal and sell off any investments that could be viewed as supporting Israel’s assault on Gaza.

Read more

Why are students protesting at Columbia University? (yahoo.com)

Here are the divestment demands that student protestors are making (NPR)

Protesters want colleges to cut financial ties with Israel, but how much would divestment really matter?

In most cases, universities are ignoring the demand and some are resorting to law enforcement to disperse the protest encampments. But at least two—Sacramento State University and Brown University—have agreed to a review of their portfolios as part of a deal to peacefully end the protests.

But as a strategy for mass social or political change, divestment is ineffective. Those of us who’ve written about the strategy are always obliged to point to its role in the 1980s anti-apartheid movement, when hundreds of corporations, public pensions and university systems cut investment ties with South Africa. At that scale and focused on such an economically isolated target, the movement was effective.

Since then, those wanting to bring about certain changes have called for divesting from other controversial industries like tobacco, guns, coal, fossil fuels and private prisons. More recently, pro- and anti-ESG mandates from state lawmakers have used divestment to make a political statement.

Pensions and divestment pressure

Public pensions are often caught in the middle of divestment demands. In fact, Illinois lawmakers in 2015 voted to require the state’s pension systems to divest from companies that boycott Israel, prompting the Institute for Pension Fund Integrity to note that the American public is deeply divided over the many issues surrounding the Israeli-Palestinian conflict, making it “all but certain there are members of the Illinois pension systems who lie on both sides of this issue and do not want their funds being used to make this political statement.”

Pensions’ long experience navigating these tides shows that these movements have more impact on the pension fund rather than the investment. In fact, divestment itself is controversial because it’s too often politically motivated and not based on sound investment strategy. Instead, these outside pressures can infringe upon an investment officer’s No. 1 priority: Keep the fund financially sound so that beneficiaries can count on what they were promised.

Read more

Report: How Private Prison Companies Fuel Mass Incarceration—and How Public Pension Funds Are at Risk

These Pension Funds Invest Millions in Private Prisons (governing.com)

How Emerging Financial Risks Could Affect Public Pension Fund Assets (pewtrusts.org)

Understandably, investment managers do NOT like being told how to do their jobs by lawmakers or appointed officials trying to score political wins. The latter is thinking about the short-term news cycle. The former has to think about the long-term fiscal sustainability of a fund that thousands of people are relying on for their retirement security.