Class News
David Swensen (hon. ’64) on embracing diversity
October 28, 2020
The Yale Daily News reported an interview with David Swensen in which he “publicly instructed the firms who manage Yale’s endowment to diversify their ranks … or risk Yale pulling its money from them.”
In an unrelated initiative, President Salovey announced that Yale formed “an expert committee to guide the university as it evaluates its investment policies in relation to companies producing fossil fuels.”
You can read more about both issues in the following two articles:
- Swensen tells money managers to increase diversity if they want to work with Yale
- Yale committee to propose new fossil fuel investment principles
Swensen tells money managers to increase diversity if they want to work with Yale
Yale Daily News
October 27, 2020
Yale’s Chief Investment Officer David Swensen has publicly instructed the firms who manage the University’s endowment to diversify their ranks — or risk Yale pulling its money from them.
Swensen’s Oct. 2 letter— which went public on Oct. 23 — went to the roughly 70 U.S. firms the University retains to manage its endowment. In the letter, Swensen asked firm managers to take a “more systematic approach” to diversifying the membership of their companies, adding that the Yale Investments Office would do the same. In a Friday article in the Wall Street Journal, Swensen said he was moved to write the letter after closely following this summer’s Black Lives
Matter protests against continued police brutality.
“I write now to enlist your cooperation in taking a more systematic approach to the problem of the lack of women and minorities in the asset management industry,” Swensen’s letter reads. “Genuine diversity remains elusive, giving investors like Yale and your firm an opportunity to drive change.”
Asset management has traditionally been a male-dominated field. A Knight Foundation found that in 2017, women- and minority-owned firms accounted for only about 1 percent of assets under management, even though the firms performed as well as less diverse firms.
According to investment executive recruiter Charles Skorina, there’s a “Catch-22” — because so few Black people have been given an opportunity in the industry, they may not have the necessary track record for CIOs to trust them to generate strong returns.
Skorina said that having role models is one of the most important factors in getting people into the business.
Gerald Jaynes, a professor in the economics and African American studies departments, said that “you have to see people who make you believe that you can achieve as they did.”
Jaynes also explained the lack of diversity in asset management by noting that the industry has recruited from the same networks for decades. According to Jaynes, many schools historically frequented by recruiters were male-only and predominantly white.
The networks and customs have maintained themselves, Jaynes said. Skorina agreed, saying that because asset management is a white male-dominated industry, young white male professionals have greater access to networking opportunities.
“Why are there so many white boys? Because white boys network,” Skorina said. “How many Black people are invited to play squash?”
The University expects responses from its managers by the end of the month, Swensen wrote in an email to the News. According to Swensen’s letter, Yale asked the firms to complete a survey detailing the number of “diverse professionals” at various ranks in their workforces, and the YIO plans to assess these firms’ progress in “hiring, training, mentoring and retaining women and minority” managers.
Each year, the University plans to survey the firms to track their progress. Though Swensen did not set specific benchmarks, the University could pull its money from firms that do not make change, the Wall Street Journal reported. Yale’s Investments Office will also seek to diversify its staff, Swensen wrote in the letter, though the Office declined to provide specific details or a timeline.
“We’re focused on improving diversity of the investment team at Yale and at our outside managers,” Swensen wrote in an email to the News.
Currently, the Yale Investment Office’s team is composed primarily of white directors.
Swensen’s letter comes amid mounting pressure from University boards for chief investment officers to put money with more diverse firms, Skorina said.
However, he added that the highest pressure on CIOs is to generate strong returns. CIOs may be concerned whether the boards will back them if they invest in less well-established firms with more diverse staff but ultimately lose money.
Swensen revolutionized the field of endowment management — he created the popular Yale model for endowment management and tutored a number of protégés who now manage endowments for other elite universities. Given Swensen’s stature in the industry, his letter will make news, Skorina said.
“People will take note,” Skorina told the News. “They will read his letter, and that in and of itself is good.”
But according to Skorina, Swensen’s threat to pull money from firms that do not diversify may only affect start-up managers or managers who are struggling. Skorina said that if a firm is having strong returns, they don’t need the University’s money.
On the other hand, Tristan Botelho, a professor at the School of Management, said that having a staff of diverse professionals may help a firm generate better returns. Managers need diversity of thought, he said.
“Diversity will contribute to a more robust and well-rounded conversation,” Botelho wrote in an email to the News. “This will be helpful because commonly held assumptions can be challenged and rethought. Also, a greater variety of opportunities can be identified for consideration.” Jaynes explained that as long as firms continue to recruit from the same networks, they will be hiring people who have been trained to look at situations in the same way. True innovation requires diversity of perspective, he said.
In the letter, Swensen warned against poaching professionals from other firms. The “zero-sum game,” as he called it, will not make the field more diverse. Swensen noted that through past discussions on the topic, he has detected interest in diversifying the industry but claims that the recruiting pool is still not diverse.
He suggested that firms hire directly from college campuses, which are “richly diverse.” Swensen also hopes that the number of diverse professionals will increase at all levels — not just at the ownership level — in order to make broader change.
“In short, ownership says nothing about staffing,” Swensen wrote in an email to the News. “A diverse owned firm could have a staff that is not diverse. A non-diverse owned firm could have a staff that is diverse.”
Yale committee to propose new fossil fuel investment principles
YaleNews
October 22, 2020
Yale University has formed an expert committee to guide the university as it evaluates its investment policies in relation to companies producing fossil fuels, President Peter Salovey announced Oct. 22.
The new committee is charged with recommending a set of principles that will inform Yale’s Corporation Committee on Investor Responsibility (CCIR) as it applies the university’s ethical investment policy to fossil fuel companies. The CCIR works in consultation with the Advisory Committee on Investor Responsibility (ACIR).
The new committee, which will collect input from the Yale community, will begin its work immediately and will deliver the report during the Spring 2021 semester.
After a Feb. 20, 2019 Faculty of Arts and Sciences (FAS) Senate meeting on fossil fuels divestment, the FAS Senate proposed that the president appoint a committee to reexamine ethical investing at Yale with respect to companies that extract or produce fossil fuels.
In Salovey’s charge to the Committee on Fossil Fuel Investment Principles (CFFIP), he noted that the changes necessary to avert an irreversible climate catastrophe “cannot be implemented overnight, and depend not only on scientific advancement but also [on] significant political, economic, and personal contributions.”
“Nonetheless,” he continued, “climate change poses an existential threat to life on our planet, and we have a responsibility to examine whether our investment policies are appropriate or need to be modified with respect to this challenge.”
In 2014, Yale, acting in its role as an institutional investor, asked its external investment managers to incorporate the full cost of carbon emissions in investment decisions. At the time, managers were told to avoid investing in companies that disregard the social and financial costs of climate change and that fail to take economically reasonable steps to reduce greenhouse gas emissions.
“Without diminishing the significance of these [past] efforts, I am fully aware that the alarm bells are growing louder, as scientific projections worsen, natural disasters intensify, and governments are slow to develop and implement effective policies,” Salovey wrote in the committee charge.
Salovey said the new committee will produce a “concrete framework” for applying to fossil fuel producers the guidelines set forth in The Ethical Investor, Yale professor John Simon’s highly influential 1972 book. That book established general criteria for universities to consider factors beyond economic return when making investment decisions and exercising rights as a shareholder.
The committee will identify the activities, behaviors, and/or characteristics of fossil fuel producers that would constitute “social injury” of such grave character that divestment could be warranted.
“The formation of this committee demonstrates significant concern at the highest level of the university about climate change and a commitment to act proactively,” said CFFIP chair Jonathan R. Macey, the Sam Harris Professor of Corporate Law, Corporate Finance and Securities Law at Yale Law School. “Our principles for making decisions related to divestment should reflect changing circumstances and the lack of decisive action by entities such as governments that we might normally rely upon for coordinating the nation’s response to existential threats like global warming.”
The committee will include experts drawn from the Yale faculty, and may also consult with other experts in relevant fields. Its members, in addition to Macey, are Ruth Blake, professor of Earth & Planetary Sciences, Department of Earth & Planetary Sciences; Benjamin Polak, William C. Brainard Professor of Economics, School of Management, Department of Economics; Mary-Louise Timmermans, professor and director of undergraduate studies, Department of Earth & Planetary Sciences; Xinchen Wang ’09, director, Yale Investments Office. The committee additionally will seek input from the wider Yale community.
“Community involvement will be a central focus of the committee’s work,” Salovey said. “The committee should propose principles that reflect the deep and valid concerns about global warming expressed by faculty, staff, students, and alumni.”
Yale’s faculty expertise on climate change and sustainability covers a wide range of disciplines and research topics, including, for example, ice melting in Antarctica and the dynamics of ocean water circulation, environmental justice, public opinion about climate change, and the public health consequences of a warming planet.
In a recent message to the Yale community, Salovey reaffirmed that addressing climate change is one of the university’s top academic priorities. Later this year, Provost Scott Strobel will convene the Yale Planetary Solutions Project, bringing together faculty members from the arts, humanities, social sciences, sciences, and engineering to identify strategies for addressing threats facing the local and global environment.
Closer to home, Yale has been a leader in achieving clean energy goals in its own campus facilities and operations. In 2016, Yale committed to becoming carbon neutral by 2050. A year ago, the university formed a task force to review and propose ambitious goals for reducing emissions; specifically, it was charged with exploring how quickly Yale can achieve net zero carbon emissions — a target consistent with the Paris Agreement.
Last year, the university also created a new multidisciplinary laboratory, the Yale University Carbon Containment Lab, that is developing and supporting innovative, scalable solutions to the climate challenge.
“By drawing on the deep expertise of scholars and policymakers at Yale and beyond, and informed by the latest scientific research, the committee will articulate a set of principles to guide our university’s investment policies,” Salovey said. “I am grateful to Professor Jonathan R. Macey for agreeing to chair this committee and to members of the committee for their important work. I look forward to their recommendations.”