Student pressure to divest from fossil fuels may affect PE at Swarthmore

Swarthmore, whose $1.95 billion endowment returned 14.2 percent last year, once again faces student activism to divest fossil-fuel investments.

Swarthmore Sunrise, the activist student group, wants the college to shed direct investments in fossil fuels. It also wants external investment managers to move the endowment into fossil-free portfolios.

The group has asked Valerie Smith, the college president, to present its terms at the May 10-11 board meeting.

In 2015 the Swarthmore board pushed back against student pressure and declined to stop investing in fossil fuels. The board pointed to a 1991 policy that says the investment committee manages the endowment to yield the best long-term financial results, rather than to pursue other social objectives.

The Swarthmore student activism is part of a national movement. Student pressure led Yale University endowment to remove about $10 million from two publicly traded fossil-fuel producers in 2016, according to a letter by David Swensen, its chief investment officer. Harvard Management Co has paused investments in some fossil fuels like minerals, oil and gas, and Columbia University last year said it would divest companies getting more than 35 percent of their income from thermal-coal production. Many other colleges have announced reviews to reduce fossil-fuel investments.

If Swarthmore’s board decides in favor of the fossil-fuel divestment, “it is yet unclear how much of the private equity portfolio will be affected,” said a fund-of-funds manager familiar with the Swarthmore endowment. But “the illiquidity of the asset class means change, if any, will be a multiyear process,” the person said.

If the board and investment committee decide to divest from fossil fuels, they could sell the interests on the secondary market.

The actual PE allocation in the $1.95 billion Swarthmore endowment was $323.4 million on June 30, 2017, up 9 percent from the previous year. At 16.5 percent the actual allocation last year was close to the long-term target allocation of 17 percent, endowment documents show.

The Swarthmore endowment makes buyout, venture-capital and turnaround investments through limited partnerships.

The endowment began investing in PE in 1990 with a 5 percent asset allocation. The actual allocation reached as high as 23 percent in 2012 and has fallen since. It has been in the 16 to 17 percent allocation range for the past few years.

The Swarthmore endowment is expected to contribute 53 percent of the college’s budgeted revenues in 2018-2019.

It returned 14.2 percent in 2017, after losing 1.6 percent the previous year.

Mark Amstutz is chief investment officer and Frank Grunseich is director of investments of the Swarthmore endowment.

Swarthmore endowment declined comment.