Harvard University lost at least $1 billion dollars of its endowment on high-risk, sustainable, natural resource investments, according to a recent report in Bloomberg Businessweek.
About six years ago, Harvard began expanding its natural resource investments around the globe, including, investments in central California vineyards, Central American teak forests, a cotton farm in Australia, a eucalyptus plantation in Uruguay, timberland in Romania, and shares in a large agricultural project in a poor part of Brazil that produced tomato paste, sugar, and ethanol, as well as energy from crop residue.
Harvard’s money managers bet the profits from these investments would grow faster than conventional stocks and bonds.
Resource Portfolio Loses
Between June 30, 2007 and June 30, 2017, Harvard’s investment portfolio averaged a 4.4 percent annual return, among the worst compared to its university peers. As Bloomberg reports, Harvard’s investments performed poorer than if it had simply invested in a market tracking index fund containing 60 percent stocks and 40 percent bonds, which would have earned an annual 6.4 percent.
Harvard’s natural resource investments were supposed to be the crown jewel of its portfolio, but have turned out to be among the endowments biggest money losers.
As a result of the losses, Harvard is selling off much of its natural resource portfolio. For instance, it sold part of its Uruguayan plantation to the insurer Liberty Mutual in 2017. In addition, Harvard is also cutting its losses and exiting the Brazilian agricultural and energy project the university invested $150 million in.
Harvard’s endowment chief, N.P. Narvekar, has chosen to write down the value of its natural resources portfolio from $4 billion to $2.9 billion, accounting for $1.1 billion in lost value.
Grow Portfolios, ‘Not Exotic Crops’
Ideology is seldom a good guide to investment and often it is the worst possible guide, says Peter Wood, president of The National Association of Scholars (NAS), which published “Inside Divestment,” a study of the campus movement to force colleges and universities to divest their holdings in fossil fuel companies.
“In our report, NAS warned the ‘leave it in the ground’ ideology, to divest endowments of their fossil fuel holdings, was a poor prescription for good stewardship of university endowments,” Wood said. “Most universities passively resisted the advocates of divestment, while a few had the courage to explain it was financial folly.
“Others, including Harvard, temporized, or delayed making a decision, while attempting to appease activist by making so-called ‘sustainable’ investments,” said Wood. “Harvard dove into growing trees in Brazil, making this a major feel-good alternative to dumping its profitable carbon energy stocks.
Woods says Harvard’s loses shows political ideology is a bad basis for making financial investments.
“Bloomberg news now reports Harvard is turning its crimson back on the tomato paste, and sundry other farm products, from poor farmers in Brazil and elsewhere,” Wood said. “This is part of Drew Faust’s legacy as the out-going president of Harvard.
“The risky strategy of hoping politically correct investments could make a decent return while staving off further campus protests failed on both counts,” said Wood. “Other colleges and universities should take counsel from Harvard’s billion-dollar bath and concentrate on growing their portfolios, not exotic crops.”
‘Harvard’s $1 Billion Mistake’
Rachelle Peterson, NAS’s policy director, says the sustainability movement has long, wrongly, argued colleges could use their endowments for political purposes without facing repercussions.
“The fossil fuel divestment movement mistakenly persuaded approximately 800 institutions, including more than 44 colleges and universities, sidelining coal, oil, and gas companies in favor of supposedly ‘sustainable’ industries would not just be revenue-neutral, but would actually generate income,” Peterson said. “Harvard’s $1 billion mistake in dabbling in ‘sustainable’ industries shows the true costs of making investment decisions on the basis of political ideology.
“Investing in high-risk industries for the sake of virtue signaling jeopardizes college and university finances,” said Peterson. “Colleges and universities should avoid using their endowments as political billboards.”
Serious Repercussions Needed
Most schools could not easily afford to lose a billion dollars, says Paul Driessen, a senior policy adviser for the Committee For A Constructive Tomorrow.
“Harvard is lucky because it has such a huge endowment, but this is just an incredible amount of money to lose,” Driessen said. “And to think the money managers received a collective $242 million over five years while losing a collective billion dollars.
Driessen says someone should hold Harvard’s money managers accountable.
“It seems to me the money managers followed their own agendas while violating their fiduciary responsibilities to the university they were supposed to serve,” said Driessen.” It’s outrageous the managers were allowed to quit and go home with all that money.
“I don’t know how the school, state Attorney General, or the Securities and Exchange Commission can tolerate something like this,” Driessen said. “There should be some serious repercussions for this.
Harvard’s situation is not unique, Driessen points out.
“We’ve seen the same thing happen with the New York and California pension systems for their public employees, where they get deeply involved with these green causes and end up losing a ton of money or bringing in a paltry 1 percent or 2 percent a year when they really need 8 percent to 10 percent to make the payments they owe their retired employees,” said Driessen. “This is an epidemic and someone has to step in and take charge.
“The bottom line is Harvard had a fiduciary responsibility to invest wisely and earn money for the school instead of losing a billion dollars in pursuit of politically fashionable, green pursuits,” Driessen said.
Kenneth Artz ([email protected]) writes from Dallas, Texas.
Rachelle Peterson. “Inside Divestment: The Illiberal Movement to Turn a Generation Against Fossil Fuels,” National Association of Scholars, November 2015: https://heartland.org/publications-resources/publications/inside-divestment-the-illiberal-movement-to-turn-a-generation–against-fossil-fuels