Wednesday, February 3, 2010

American Universities as Hedge Funds?

We'd also like to direct your attention to the following story at Huffington Post by Bob Samuels: How America's Universities Became Hedge Funds. A few notable quotes:
When journalists asked the UC president, Mark Yudof, how the university could lend millions of dollars to the state, while the school was raising student fees (tuition), furloughing employees, canceling classes, and laying off teachers, Yudof responded that when the university lends money to the state, it turns a profit, but when it spends money on salaries for teachers, the money is lost....

To understand how both public and private research universities have gotten themselves into this mess, one needs to understand five inter-related factors: the state de-funding of public education, the emphasis on research over instruction, the move to high-risk investments, the development of a free market academic labor system, and the marketing of college admissions. These different forces have combined to turn universities into corporations centered on pleasing bond raters in order to get lower interest rates so that they can borrow more money to fund their unending expansion and escalating expenses.

Do go read the whole thing. David Swenson and others are implicated in this move, and many major universities, including the UC system, Harvard and Yale, are all doing the same stuff.

And as someone who is an alum of both Harvard and Yale, and a former organizer for Yale unions, I want to say the union movement at Yale was critical of Swenson's tactics from the beginning. From a Yale Alumni Magazine story in 2005:
Perhaps because Swensen prides himself on his integrity, he bristles when critics come after him. Student activists have accused Yale of investing in oil and timber operations that are environmentally irresponsible. Others, including a U.S. senator, blamed Yale for backing a hedge fund that planned to pump, export, and sell water in the San Luis Valley of Colorado. Yale's unions, in particular, have targeted the university, saying it is needlessly secretive about its investments. "They're doing a fabulous job of making money, but what are the social and environmental costs?" asks Ben Begleiter '04PhD, who works for the group that is trying to organize a graduate students' union. Two years ago during a union strike, eight retired employees seeking higher pension benefits occupied Swensen's office overnight. They refused to believe him when he tried to explain that he had no sway over their pensions.

Farallon is the hedge fund many universities use, and it is important to consider not only our own personal costs -- loss of raises, furloughs -- that have come from higher ed financial mismanagement, but the social costs. This is a report from 2005 sponsored by the Yale Unions showing Farallon's support of Corrections Corporation of America, the largest private prison company in the country. It details Farallon's relationship to CCA, but also the human rights abuses that occur within the CCA's prisons.


  1. It's an interesting article, but Samuels concludes with a few solutions I find troubling: that 1) the solution is to divide the professoriate into 'research-only' and 'teaching-only' tracks; admittedly, this is partly happening de facto, but I see this as a problem, rather than a solution; 2) that the solution is to institute a national instruction-based evaluation system, which sounds like No Child Left Behind to me (and also another bureacuracy). The diagnosis seems okay, the prescription wrong.

  2. I agree -- the diagnosis is great -- the prescription we should find for ourselves.

  3. Exactly! I'm glad you both felt this way too. Susan was the one who suggested the article, and it seems like good fodder for discussion, even if his prescription is problematic.


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