Profit takes priority in investment choices

Michelle Ma

Like most universities, Northwestern makes investment decisions that prioritize high returns for the school. But as college students across the country demand a greater say in where endowment money is invested, calls among students for universities to consider “socially responsible investing” continue to rise.

NU invests its endowment money in multiple companies through third-party money managers. The university then receives money from its investments. Some students want to ensure that NU invests in companies promoting workers’ rights and environmental preservation.

But because NU needs to bring in money from investments, social responsibility isn’t the top priority for the university’s investors, said William McLean, vice president and chief investment officer.

“Social responsibility isn’t a criteria when looking for managers,” McLean said. “We want ethical firms, ethical behavior, but we’re not looking to hire firms that have as their mandate boycotting or divesting companies because of their behavior.”

NU students have requested a committee of students, faculty, staff and administrators be formed to recommend to NU’s Board of Trustees how to invest NU’s $4 billion endowment. Members of Students for Economic Justice advocate ways for students to push for socially conscious investments.

“Now financial decisions are made by trustees,” said Kyle Schafer, a McCormick sophomore and member of SEJ. “A committee wouldn’t change that, but it would make recommendations on how endowments could have positive social impacts.”

NU — like most universities — does not directly invest in stocks or companies. Instead, the Board of Trustees chooses managers who compile portfolios with diverse stocks from multiple companies. Employing money managers who hold extensive portfolios is the most beneficial and cost-effective investment strategy for a university, McLean said.

“We figure out what we need in the portfolio, and then we do searches for managers,” he said. “We narrow the search down to a group of managers who have proven expertise in that space.”

Carl M. Birkelbach is a money manager who promotes socially responsible investments. Based in Chicago, Birkelbach Management Corp. provides investors with portfolios that only include companies that meet certain high environmental and social standards.

“It’s important how you live your life, it’s important how you earn your money, it’s important how you invest your money,” Birkelbach said. “If you don’t hold yourself to that higher standard, how can you hold anyone else to it?”

Birkelbach said most money managers don’t directly consider socially responsible investing when compiling their portfolios.

Stanford University has considered socially conscious investing since the 1970s, said Linda Kimball, the school’s manager of investment responsibilities. But in the last five years, Stanford and most universities have decided to stick with some companies that have looser social or environmental standards, Kimball said.

“If we keep eliminating bad companies from the profile, we lose places to invest in,” she said.

NU has adopted a similar mindset, McLean said. Although yielding high returns is the most important part of investments, social responsibility is still sought, he said.

“(We) proactively search for investments that are potentially doing both, making good money and doing some good at the same time,” he said.

Although it’s unusual for the Board of Trustees to divest, if the NU community responds negatively to issues in a company or country in NU’s investment portfolio, their concerns would be taken into consideration, McLean said. In the early 1990s, NU divested from one company over student unrest about apartheid in South Africa.

Reach Michelle Ma at [email protected]