Mindful investing for better education
• Universities would benefit from aligning their pension and endowment funds with a more responsible vision
Last year, South African universities faced one of the most violent structural crises of the past 30 years. Students challenged something that had long been taken for granted: that they should have to pay for their tertiary education since it is an industry that obeys free market principles.
The push-back against rising tuition fees did not take place in isolation. It has led to a wider student movement focused on decolonising universities at the economic, racial, curriculum, spatial and staff levels.
This movement raises two big questions: can academic institutions fulfil the needs and aspirations of a new generation of students who are reluctant to accept the status quo? And to what extent can and should universities be in charge of solving the societal problems around education, not only in SA but also elsewhere in the world?
It seems self-evident that universities cannot simply ignore what is happening on their campuses. They cannot disregard their students. Therefore, they have a duty to try to solve the societal challenges presented to them.
Of course, this means serious engagement about what a university is and what it should be in a society like ours. How it teaches and what it teaches must be part of that discussion. However, there is another often overlooked role that universities can play.
As large institutions, universities are responsible for investing significant amounts of pension money on behalf of their employees. They also have large endowments. The way these funds are allocated could have a substantial effect on transforming the education sector.
All around the world, universities’ pension and endowment funds are progressively aligning their investment portfolios with the concerns of students and staff. The thrust is towards a more caring form of capitalism.
To date, more than 300 institutional asset owners have signed up to the Principles for Responsible Investment (PRI), the largest responsible investment coalition worldwide. Yet only seven South African asset owners including the Government Employees’ Pension Fund, have signed this UN initiative.
So far, no universities on behalf of their retirement or endowment funds have signed the PRI in SA, or elsewhere in Africa. In the UK, the University Retirement Superannuation Scheme was the first academic retirement fund to sign the PRI in 2006.
In the US, the $35bn Harvard University Endowment Scheme signed up in 2014, under pressure from activist students. They highlighted the discrepancy between the curriculum at Harvard, which focused on ethics and sustainability, and the endowment fund’s approach of conducting business as usual.
So far in 2017, at least four retirement funds, endowment funds or foundations linked to universities or tertiary education institutions in the US and Europe have signed the PRI.
Often this has been done under pressure from activists’ student constituencies that are pushing for a more sustainable approach, such as a total disinvestment from fossil fuels, a move that is proving to be beneficial for investments.
The Africa Investing for Impact Barometer, a research project by the Bertha Centre for Social innovation and Entrepreneurship at the University of Cape Town’s (UCT) Graduate School of Business, shows that SA is leading the continent when it comes to investing for impact, although this trend is not necessarily being taken up by university endowments.
The barometer found that $325.9bn was invested in Southern Africa at the end of 2015 by commercial fund managers on behalf of institutional asset owners seeking to combine financial returns and positive impact on society, the environment and governance.
Fund managers in East Africa reported $15.4bn of overall assets and in West Africa, $12.6bn of assets were deploying at least one investing-for-impact strategy.
What the barometer also demonstrates is that while the investment industry in SA is doing well to communicate how it invests for impact, a lot of work still needs to be done to record the tangible effect of these investments.
It is critical this is reported in a transparent way that will convince an external audience of their value.
If fund managers can do this successfully, it would surely strengthen the argument for universities’ boards of trustees to be more proactive in committing to responsible investments that tackle social and environmental issues.
If this is not done with more rigour, it is likely that student activist movements will increasingly question and contest universities’ choices to invest in companies that perpetuate the status quo with regard to issues such as climate change or the exploitation of workers.
This is what happened in 2014, when the #RhodesMustFall movement accused the leadership at UCT of having blood on their hands for being invested in Lonmin at the time of the Marikana massacre.
In addition, universities in SA and Africa should consider offering their employees alternative portfolios within their pension funds that focus on positive outcomes for society. This would be achieved through exposure to thematic and impact investing funds that focus on sectors such as agriculture, renewable energy, infrastructure and small and medium enterprise finance.
Universities should appreciate, and promote, the fact that thematic investments and impact investments are not charity. The financial return remains as important as the investment’s broader social effect. These funds also show a low correlation to listed markets, making them an excellent way to diversify a portfolio.
Additionally, universities should consider that the Africa Investing for Impact Barometer found the most common themes in SA for impact investors are investment in small and medium enterprises, socioeconomic transformation, infrastructure, health and energy. Education is only ninth on the list.
One could argue that education should be dealt with via public subsidies and the private investment sector should focus on other matters.
But when the private investment industry is managing savings on behalf of academic institutions, does it not make sense to be a bit more innovative with these investment assets?
If employees were given alternative choices and these were well communicated to them, how many would show an interest in placing a part of their savings in an educational development fund as opposed to simply investing in the usual listed markets?
This progressive alignment of personal and professional interests with how pension money is invested is already happening in many parts of the world. Should African universities not be at the forefront of adoption here?
This would allow their considerable investment portfolios to be channelled towards allaying the concerns of their students and staff and helping to build a more equitable and sustainable future.
UNIVERSITIES HAVE A DUTY TO ATTEMPT TO SOLVE THE SOCIETAL CHALLENGES PRESENTED TO THEM
PENSION FUNDS ARE PROGRESSIVELY ALIGNING THEIR PORTFOLIOS WITH THE CONCERNS OF STUDENTS AND STAFF