American Universities as Hedge Funds?

We'd also like to direct your attention to the following story at Huffington Post by Bob Samuels: How America's Universities Became Hedge Funds. A few notable quotes:

When journalists asked the UC president, Mark Yudof, how the university could lend millions of dollars to the state, while the school was raising student fees (tuition), furloughing employees, canceling classes, and laying off teachers, Yudof responded that when the university lends money to the state, it turns a profit, but when it spends money on salaries for teachers, the money is lost....

To understand how both public and private research universities have gotten themselves into this mess, one needs to understand five inter-related factors: the state de-funding of public education, the emphasis on research over instruction, the move to high-risk investments, the development of a free market academic labor system, and the marketing of college admissions. These different forces have combined to turn universities into corporations centered on pleasing bond raters in order to get lower interest rates so that they can borrow more money to fund their unending expansion and escalating expenses.

Do go read the whole thing. David Swenson and others are implicated in this move, and many major universities, including the UC system, Harvard and Yale, are all doing the same stuff.

And as someone who is an alum of both Harvard and Yale, and a former organizer for Yale unions, I want to say the union movement at Yale was critical of Swenson's tactics from the beginning. From a Yale Alumni Magazine story in 2005:

Perhaps because Swensen prides himself on his integrity, he bristles when critics come after him. Student activists have accused Yale of investing in oil and timber operations that are environmentally irresponsible. Others, including a U.S. senator, blamed Yale for backing a hedge fund that planned to pump, export, and sell water in the San Luis Valley of Colorado. Yale's unions, in particular, have targeted the university, saying it is needlessly secretive about its investments. "They're doing a fabulous job of making money, but what are the social and environmental costs?" asks Ben Begleiter '04PhD, who works for the group that is trying to organize a graduate students' union. Two years ago during a union strike, eight retired employees seeking higher pension benefits occupied Swensen's office overnight. They refused to believe him when he tried to explain that he had no sway over their pensions.

Farallon is the hedge fund many universities use, and it is important to consider not only our own personal costs -- loss of raises, furloughs -- that have come from higher ed financial mismanagement, but the social costs. This is a report from 2005 sponsored by the Yale Unions showing Farallon's support of Corrections Corporation of America, the largest private prison company in the country. It details Farallon's relationship to CCA, but also the human rights abuses that occur within the CCA's prisons.

Cut administration, corporate welfare first

Scorching new letter to the editor by CFA Executive Committee member:

Before we implement furloughs that will cause considerable hardship, we should reduce the costs of activities outside the research and teaching missions of the university.

We continue to increase administrative positions, for example, often at high salaries, even as cuts undermine these missions.

How can we implement furloughs fairly if it comes to that? First, acknowledge that these are substantial wage cuts following several years with tiny or no raises. We have fallen further and further behind. Now wages – along with travel, research, and other funds – are being reduced. Cuts in academic units continue to diminish the quality of undergraduate and graduate education.

Second, acknowledge the vast salary gaps between faculty and the proliferating number of highly paid administrators. The university's plan to exempt workers earning less than $30,000 and assess a small number of top administrators a higher number of furlough days is a modest effort in this direction. If the number of impacted administrators were increased, it would be possible to exempt a greater number of the lowest paid.

This crisis draws our attention to some misplaced priorities and a conversation that is long overdue. We should reduce our bloated administration and the charity we practice toward private corporations in the research park. We cannot afford the costly corporate policies implemented over the past decade.

The human costs could be reduced if we invested our limited resources where they are needed most – in teaching and basic research, not huge administrative salaries and support for private corporations.

JIM BARRETT