MAKING WAVES
Congress will likely soon pass legislation that will make it easier for state pension funds to divest from firms doing business in Iran, in spite of the opposition of pro-regime lobbyists and fund managers. A coalition of larger fund, collectively controlling $570 billion in assets, has begun to urge companies to reconsider their relations with Iran.

More than a dozen state legislatures have passed laws or are considering measures that would require public pension funds to divest holdings in firms doing business in Iran’s energy sector. California has passed a bill targeting its public-employee and teachers’ retirement system, and a similar bill has been proposed in New York.

Legislation in Louisiana is especially notable. Sponsored by Rep. Pete Schneider, the legislation authorizes the governor to contract with Wall Street firms to create terror-free funds. Roger Robinson, president of Conflict Securities Advisory Group, the preeminent independent research and data provider in the field of terror-free investing, underscores the importance of this legislation:

The “pooled” investment funds of Louisiana can be transferred to these new terror-free products. The major advantage of this state’s approach is that it explicitly calls for the creation of terror-free products that can be made available to every American investor. Such products should be coming to market soon.

Once such a fund is established, in other words, it has the potential to become what Morris calls “the gold standard” for divestment by all.

HIGHER ED, HIGHER STAKES
It is difficult to determine the actual extent to which universities, many with immense endowments, are investing in firms that sustain terror-sponsoring states. The institutions themselves, which normally engage money managers to invest and manage their endowments, generally post only cursory summaries of the overall performance of their investments. Detailed information about which securities are held in these portfolios is seen as being proprietary in nature since it reflects the specific philosophies, strategies, and techniques of the managers involved, and is therefore not usually published.

However, one may glean a sense of the enormous amounts of money involved. My analysis of data compiled by the National Association of College and University Business Officers, with 765 public and private colleges and universities reporting, shows that the total market value of these institutions’ endowments in 2006 was $340 billion. The top 20 of these campuses represent close to 50 percent of the total of all reporting institutions.

Because the need of the hour is great, significantly increased transparency about university-investment decisions is also in order. The SEC’s terror watch list, which enumerates only companies traded on U.S. exchanges, includes companies, mostly foreign, with many readily recognized names, such as Unilever, Cadbury, HSBC, Nokia, Siemens and Total. (Note that there are exceptions in U.S. law which permit American corporations under certain circumstances to do business in terrorist-sponsoring states, and, of course, foreign companies listed on the U.S. exchanges are not subject to American sanction acts.) These large multi-national enterprises are likely candidates for inclusion in any well-diversified portfolio. The magnitude of these 20 endowment funds is such that a large percentage of them, like pension funds seeking broad diversification, are almost certainly investing, to some greater or lesser degree, in firms benefiting the Iranian regime (and the other states on the terror watch lists).

Not included on the SEC’s list, as Robinson remarks, are companies such as Sinopec, Gazprom, and China National Offshore Oil Company, which routinely act as instruments of state policy. He also estimates that large public pension funds — again in this respect likely comparable to university endowments — were generally found to have between 10-20 percent of their portfolio exposed to this present financial risk.

The nation’s higher-education governing boards must exert far greater scrutiny and prudential judgment over their trust funds. University trustees have a fiduciary obligation to ensure the prudent investment of endowments. In that capacity it does not suffice to merely hire a management firm and leave everything to that firm’s discretion. Boards should know how the moneys are being invested and set parameters for their managers.

In addition to fiduciary considerations, however, higher education exists for purposes above and beyond accumulating material wealth. Central to its mission is to serve high civic and moral purposes and to establish high ethical standards for all. Consequently, in addition to risk factors, trustees have the authority to establish moral and value-based parameters for investments, as long as the parameters are not inconsistent with prudent management.

What is more basic to the commonweal, and fundamentally moral, than vigilance in time of war — when the very survival of the republic is at stake?

It is urgent that the nation’s higher-education leaders muster the will to demonstrate their institutions’ high purposes by participating in the Divest Iran movement. The largest institutions should point the way for all our colleges and universities by pledging not to invest in companies there and elsewhere whose business dealings benefit Iran and other terrorist states. Higher education’s example would no doubt lead others to follow suit.

Will campus boards rise to the occasion? Recent responses to an inquiry by the Senate Finance Committee into certain investments in offshore tax havens by Harvard, Yale, and Stanford are not encouraging. For instance, John Longbrake, a Harvard spokesman, replied the university does “not discuss investment structuring.” Chris Yates of Stanford commented vaguely that the university “probably” uses intermediary companies, and Yale’s Karen Peart had no immediate comment.

Trustees must promptly undertake an examination of the investment portfolios of the institutions they serve, and they must publicly declare the philosophy underlying the portfolios. In addition, there can be little excuse for not publishing the details regarding all investment holdings while protecting any proprietary information that might disclose strategies or policies employed by the various money managers.

It would be the height of irresponsibility — and perverse irony — for higher education, whose sacred duty it remains to guard and transmit civilized values and life, to continue to invest in civilizational suicide.

— Candace de Russy is an expert on higher education who blogs at NRO’s “Phi Beta Cons.”

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