Making it plain in dot-edu land

In March I wrote that the highly-progressive pricing of college in the U.S. was heavily masked behind jargon and codewords -- but actually that concept seems to be coming out from behind the curtain a bit. The University of Chicago just joined the growing list of prominent institutions who are expanding and/or making plain the huge discounting that has long been available to families with lower incomes.

In the U. of C.'s case a $100 million anonymous donation has provided the immediate spur to a new policy: four years of college free for students with family incomes under $60,000. The university hopes to raise another $300 million to make this arrangement permanent and I have no doubt that in the current climate they'll find it.

Quoting that newspaper report: "About 20 universities nationwide—including Northwestern, Columbia and Harvard Universities—already have gone loan-free for students whose family incomes are below a certain threshold. A handful of schools, including Princeton University and Davidson College, have eliminated loans for all students." In reality those policies are only an incremental change from the practices of the last 30 years or so: it's long been true that only a minority of students at the top schools pay close to the full official costs, all the major colleges have been discounting based on ability to pay for decades. But it's certainly clearer and fairer to make that approach plain and simple, and the development departments appear to have caught on that hardly anything else is easier to lure wealthy donors with.

The McCormick Tribune Foundation just moved into the bull's-eye

The Tribune Company is one of America's largest media conglomerates: owner of the Chicago Tribune, the L.A. Times, the New York Daily News, other newspapers around the country, the Chicago Cubs, WGN TV and radio, Metromix, and sundry related businesses. The company's ongoing corporate soap opera has a significant non-profit-governance element which has been overlooked or overshadowed...until now: Illinois Attorney General Lisa Madigan "has taken an interest" in the issue of whether the heavyweight Robert R. McCormick Tribune Foundation is being run properly as a charitable institution.

The source of this news is a front-page article in this week's issue of Crain's Chicago Business, the city's leading business newspaper. Madigan, who has previously put non-profit hospitals in her sights, seems pretty clear on the fact that being a tax-exempt organization in the U.S. is a legal and social contract not a blank check or inalienable right. Given the facts here, that does not look good for the foundation. Madigan's scrutiny may also may have an impact on the the ultimate fate of the media company, via a scenario explained in the Crain's article linked above.

That also does a decent job of explaining how the foundation and the company are so tightly linked and why, but the degree to which that is contrary to modern standards of non-profit governance and law doesn't really come across. The foundation remains basically a captive creation of the company, and that is one of the once-common practices that inspired the wholesale rewrite of federal charitable-foundation law in 1969. It also certainly violates the spirit, at least, of Illinois' not-for-profit incorporation statute.

The quote from Robert Sitkoff at Harvard could be correctly applied to the whole setup, not simply the specific transaction he's commenting on there. The foundation spokesman's rejoinder at the end of the article is feeble as a defense of the specific issue about responsible investing of the foundation's endowment, and that isn't the biggest odor about this anyway.

The "Slate 60" sounds off

Ten years ago, Slate editor Michael Kinsley was inspired (by something Ted Turner said in an interview) to create the "Slate 60": the philanthropy version of the Forbes 400 annual list of America's richest people. Arguably Kinsley was a bit ahead of his time in 1996, which was before Bill Gates and Warren Buffett and Gordon Moore started famously taking turns doing modern-day Andrew Carnegie impersonations. (For that matter so was Turner, who has a right to feel like he was doing billionaire philanthropy before it was cool.)

Anyway it was a good idea and the ten years worth of lists make for interesting reading; one can see things like the sources of vast new personal fortunes, what subjects and institutions have the attention of the super-rich, and of course the unprecedented new scale of individual philanthropy. (Despite personal wealth in the U.S. being vastly less concentrated today than in Carnegie's time Bill Gates has already given away in real dollars several times as much as either Carnegie or John D. Rockefeller did; and yet all the giving for a year by the entire Slate 60 is a small fraction of total American individual giving which is closing in on $300 billion per year.)

This past November, Slate gathered members of the Slate 60 from its first ten years for a public conversation. I like the NonProfit Times writeup which is both thorough and just a bit cheeky ("With their limos waiting outside, donors gathered at the conference to discuss..." Those would be hybrid limos staffed by salaried drivers receiving family health insurance, I trust?). For example their reporter quoted Bill Gates Sr. scoffing at the dot-commers' notion that philanthropy only just this second became entrepeneurial (he has a point in a generalized sense of that word, not so much if the narrow fiduciary sense of it is meant).

The Chronicle of Philanthropy writeup is drier, though probably does a better job of getting across the key messages of a couple of people like New York Mayor Michael Bloomberg. Slate meanwhile posted video and audio from the conference itself. (The conference also included prominent philanthropists who haven't personally made the Slate 60, such as Bono.)

University endowments are kicking the market's butt

News coverage of an annual report on U.S. university endowments (released this week) has tended to focus on either the gaudy totals, or the related news that Princeton has decided to freeze its tuition for a year. (It turns out that while a few other endowments are larger in total, Princeton has the most endowment dollars per student.)

The Economist wants to know how American universities are managing to invest better than even hot-shot hedge-fund managers? That's not a new or unusual outcome, apparently, and the schools aren't paying successful investment managers the same level of wild salaries and bonuses that for-profit firms do. (Though a few universities do pay their investment chiefs a lot more than their professors or even presidents, which has caused some public controversies that have in turn chased away some managers.)

The Economist thinks that the big university endowments represent "capitol [that] is extremely patient....unlike pension funds, they do not have to fret about matching assets with liabilities. This means endowments can tolerate lots of volatility, which in turn allows them to make, and stick to, contrarian bets....Perhaps they can stay solvent longer than the market can stay irrational." Hence "America's endowments were among the first to look beyond the staid mix of domestic equities, bonds and cash. The idea they helped develop in the 1970s and 1980s—deemed eccentric at the time—was to break the portfolio into a mix of standard and “alternative” assets, as uncorrelated with each other as possible so as to spread risk. This strategy is sometimes referred to as “portable alpha”. Their early moves into hedge funds, venture capital, private equity, property, distressed debt and the like brought outsized profits...."

University investment managers may also have identified a couple of interesting competitive advantages: " “Whereas pension trustees are naturally risk-averse, universities are all about innovating, financially as well as intellectually,” says James Walsh, who runs Cornell's $5 billion endowment. Investment constraints are kept to a minimum. Alumni with Wall Street experience are encouraged not only to donate money but also to sit on investment committees. Many are happy to oblige. “This gives us access to minds we couldn't otherwise afford,” says Mr Walsh." "

One thing I'd like to see some data on, which would help inform the current debate about mission-related investing of foundation endowments, is how university endowment returns have been correlating with divestment decisions. The NACUBO report doesn't address that, unfortunately.

More on foundation investment practices

The Wall Street Journal followed up yesterday with a small article about foundations which clarified for me that there are really three basic choices for foundations, not two as the L.A. Times portrayed it. (You can't read the Journal article unless you're a subscriber but a Chronicle of Philanthropy note on it is here, and Philanthropy 2173 has links to all the foundations mentioned in it.)

(If you're interested in this subject, go take Lucy Bernholz's online poll found on the right at the Philanthropy 2173 link above.)

The L.A. Times articles about the Gates Foundation talked about either letting mission-related issues influence decisions about buying stock, or deciding that getting the highest returns is all that matters. That's basically the same as the debate about whether Western nations should keep China at arm's length until it improves its human-rights practices, or have normal diplomatic relations so as to encourage change. (When I was in college the topical subject of that foreign-policy debate was South Africa.)

Buying stock in a corporation, though, is different: it's ownership. You get to actually vote on the policies of the thing you own part of, and to speak out loud at annual meetings where the management and all the other owners have to listen to you. Indeed if enough other owners feel the same way that you do about an issue like corporate practices, the company must follow your wishes. That's a whole different caliber of influence than any nation, even the U.S., gets by trading with China -- the U.S. State Department obviously does not get to speak, let alone vote, as a member of the Chinese Politburo or even the country's toothless parliament.

Upon reflection that's the path which seems to me to best leverage the latent power for change of big investment portfolios. So that's why I voted for option 4 on the online poll mentioned above. (I notice that the poll stacks the deck in its structure -- it lists three different flavors of the first strategic option and then just one version of the other two -- so there's little chance that anything but a version of "mission imperatives should change investment choices" will win.)