UNC investment debates complicate endowment

It wasn’t long after Mark Yusko arrived in Chapel Hill in 1998 with big ideas about how to revitalize UNC-Chapel Hill’s slumping endowment that he met the brick wall of administrative bureaucracy.

“The reason they brought me to North Carolina was because UNC had one of the worst performing endowments in the country, and the chancellor, Michael Hooker, was tired of losing every year to Duke. Not in basketball or football but investing,” Yusko said.

The former head of the University of Notre Dame’s endowment fund wanted to get UNC invested in alternatives to the traditional stocks and bonds — namely oil and private instruments, like hedge funds. He said members of the UNC endowment’s Board of Trustees quickly shot down those ideas.

Yusko said one member told him investing in oil — then trading as low as $10 a barrel — was “the dumbest thing I’ve ever heard.” A barrel of oil increased to as high as $128 in 2008 and currently sits at $57 a barrel as of Thursday.

Yusko said this pushback led him to distance the endowment fund from University administrators and create in 2002 what is now the nonprofit UNC Management Company. It currently manages UNC’s $2.6 billion endowment, as well as a $4.1 billion fund that comprises all UNC-system schools.

Jonathon King, current CEO for the UNC Management Company, was not made available for this story.

From 2004 to 2014, energy and natural resources had a 17.7 percent return in the UNC Chapel Hill Foundation Investment Fund, according to the company’s annual report.

But the continued use of oil and similar energy investments is under pressure from environmental groups.

In September, the finance and infrastructure committee of the Board of Trustees approved a nonbinding resolution sponsored by the Sierra Student Coalition to target alternative energy sources in future investments for the University’s endowment. The resolution does not affect current coal investments.

“We are acting in accordance with the recommendation made by the Board of Trustees in September: that the best way for us as a society to move away from fossil fuels — and coal in particular — is to explore and potentially invest in alternative fuel sources,” said Janine Vanzetta Burke, UNC Management Company’s director of investor relations and communications, in an email.

The Board of Trustees expects to hear a presentation on possible energy investments at its meeting in May.

“There’s a very strong notion that environmental preservation has to come at a cost to economic prosperity,” said freshman Nikola Yager, a member of the Sierra Student Coalition. “In reality, many studies have showed that fossil free portfolios can yield equal returns of those that include coal and other fossil fuels.”

Yusko left UNC’s endowment fund in 2004 and founded Morgan Creek Capital Management LLC — now a $4.1 billion hedge fund — and said coal investments have not done well in recent years.

“I would say the exposure to coal in the endowment today is minuscule barely even measurable,” he said. “Quite honestly they should have divested from coal three years ago.”

In May 2014, Stanford University’s Board of Trustees pledged to not make direct investments in publicly-traded companies whose mine coal for energy generation. And on April 1, Syracuse University pledged to divest from all nonrenewable energy resources.

Sallie Shuping-Russell, a member of the UNC Board of Trustees and the UNC-CH Endowment Fund Board of Trustees, said removing all of the coal stocks out of the endowment’s portfolio is not the best option for reducing UNC’s carbon footprint.

Yusko said in almost every divestment case, no individual institution owns enough stock to effect change unless there is a large-scale coordinated effort.

“If we sold a coal company’s stock, that company is not going to stop producing coal, but if we made a bunch of money owning that company’s stock and then we used some of those profits to get involved in some sort of grassroots effort that might have a chance of making a difference, that’s better,” Yusko said.

In the 1980s, UNC was among many colleges that divested from companies in South Africa during apartheid. In 2002, a group of UNC students and faculty petitioned the endowment to divest from companies that had military or financial ties to Israel due to ongoing conflicts with Palestine. Then-Chancellor James Moeser opposed the petition and discouraged the endowment from divesting.

Yager said while the coalition would like to see UNC commit to divesting from coal, it is not pitting itself against the University.

“If UNC were to divest now instead of three to four years from now, then it would mean so much more to the movement if we were to be a frontrunner,” Yager said. “That’s one reason why the University needs to get on it.”

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