Endowments are meant to insulate universities from politics. But far from being apolitical, the arrangement prioritizes the whims of the market, the authority of financial experts, and the preferences of donors over the concerns of students and faculty.

Students at San Jose State University (SJSU) protest Israeli attacks on Gaza in San Jose, California, on April 24, 2024. (Tayfun Coskun / Anadolu via Getty Images)

Why has it been so difficult for students demanding divestment from Israel to catch their university administrations’ ears? Part of the answer is the specific content of the request: universities’ donors are more pro-Israel than their students. Schools hoping to both quell the protests and continue courting philanthropic support find themselves balancing competing and perhaps irreconcilable interests.

Equally important, however, is the nature of university investing itself, and the broader structural logic of university financialization. Over the last four decades, endowments have ballooned and become increasingly central to universities’ self-conception and function, with financial professionals proliferating throughout schools’ administrative ranks and assuming greater control of institutional priorities. For university administrators, the deeper and more existential risk emanating from the encampments is the breaching of the barrier that insulates investment decisions from the specter of politics, and the possible democratization of the financialized university itself.

Endowments are political objects, subject both to macrofinancial pressures and recurrent pressures from interested groups on campus. But they also represent a fantasy for universities looking to retreat from politics. This fantasy is both functional and formal.

Functionally, the endowment buffers the university from the political demands attached to other sources of funding, like taxpayers, students, and state legislators. So long as the principal isn’t spent down — which, by policy, it never is — then shrewd investment allows for a source of funding that seems to autogenerate, sustaining itself and by extension the university over time. Formally, meanwhile, the endowment is governed by a technocratic sensibility that treats divestment as an intolerable and exacting political threat but investment as an act somehow devoid of politics.

Insulating From Public Pressure, Opening Up to Private

In parsing the curious rise of university endowments, Henry Hansmann in 1990 argued that one of the early functions of turning to private funding streams at Harvard and Yale — both of which were initially funded heavily by their respective state legislatures — was to shield those schools from shifting political winds, ensuring more autonomy. “Private sources of funds were evidently successful in insulating both universities from serious public influence in their affairs for the remainder of the nineteenth century,” he writes. “On the other hand, both institutions fell under the strong influence of the groups that contributed to their endowments.”

Turning to the endowment does not allow the university to evade politics; it only reconfigures the relative power of the university’s inescapably political constituencies.

When financial markets began to liberalize in the 1970s and 1980s, the size and sophistication of university endowments also birthed a stratum of financial managers who came to wield enormous influence on their campuses. In Bankers in the Ivory Tower, sociologist Charlie Eaton traces the “social circuitry of finance,” the elite personal interconnections between Ivy League institutions and Wall Street in the 1980s that fed the growth of then new private equity and hedge funds being capitalized by endowment dollars. This investment philosophy, part of the “Yale Model” pioneered by David Swensen, led to the spectacular expansion of Ivy League endowments thanks to their privileged access to these burgeoning financial vehicles.

The apparent sophistication of this approach held special appeal for public institutions like the University of California (UC), where we study and work, as a model to be emulated amid broader state retrenchment and tax volatility beginning in the late 1970s. Here, it seemed, was a pool of money the university could nurture and grow without relying on state appropriations or the increasingly fickle and contentious tax revenues those appropriations required.

But turning to the endowment does not allow the university to evade politics; it only reconfigures the relative power of the university’s inescapably political constituencies. The same financial managers, consultants, and partners the university entrusts to grow the wealth in its endowment portfolios use the strength of those portfolios to assess the creditworthiness of the university and the terms on which it increasingly borrows. The effect is to remake university governance. Capital markets reward brand strength, endowment growth that outpaces operating expenses, a demonstrated ability to raise tuition, and the labor flexibility that comes from low rates of unionization and tenure on campus. In looking for a way to escape the whims of sometimes demanding campus constituencies, universities subject themselves to the whims of financial markets — which increasingly take on the appearance of natural laws.

Financial managers, with their unique technical expertise to interpret those laws, are granted sole authority to make investment decisions for the university. Any challenge to that authority is dismissed out of hand. A 2019 op-ed by University of California chief investments officer Jagdeep Bachher and chairman of the UC Board of Regents’ Investments Committee Richard Sherman illustrates the point. The UC’s announcement of its divestment from fossil fuels was hailed at the time by both student groups and in the national press as a win for the climate. Bachher and Sherman, though, wanted to be clear that student pressure was not to thank for their maneuver, asserting that it was simply good business sense. “While our rationale may not be the moral imperative that many activists embrace, our investment decision-making process leads us to the same result,” they wrote. “We believe there is money to be made. We have chosen to invest for a better planet, and reap the financial rewards for UC, rather than simply divest for a headline.” Here was a moment to extend an olive branch to student activists; instead, UC administrators had to deny such pressure amounted to anything in order to preserve the appearance of their sole discretion over investment decisions.

Divestment from South African apartheid, the paradigmatic case, offers an instructive historical parallel. The regents rejected calls for divestment through the 1970s, with UC treasurer Owsley Hammond telling the Oakland Tribune that “an extremely dangerous precedent would be set if the regents were forced to base their investment philosophy upon the political or moral beliefs of certain segments of the population.” But then, in 1985, responding to police crackdowns in South Africa, Berkeley students staged a weeklong sit-in that ended with police arresting 158 students. The repression helped to propel further action, and a year later — with political momentum finally building against apartheid South Africa both in California and nationally — the UC’s regents pulled $3.1 billion from companies doing business with the country.

In looking for a way to escape the whims of sometimes demanding campus constituencies, universities subject themselves to the whims of financial markets.

Years later, Nelson Mandela came to the UC and told students how instrumental their activism had been in bringing down the apartheid regime; alongside the Free Speech Movement, anti-apartheid organizing now forms an important moment in the university’s narration of its radical past. Yet even this easy victory was hard to stomach. In 1998, UC president David Gardner recalled that “we didn’t invest in South Africa because of apartheid; I thought we shouldn’t divest because of it. . . . We allowed the political rhetoric to dominate the debate, and the political rhetoric was, in effect, a bumper-sticker approach to the issue.”

The Threat of the Encampments

A similar outlook characterizes the university’s response to contemporary calls to divest. Two weeks after hundreds of police officers and sheriffs were mobilized to break up the Palestine solidarity encampment on our campus, the University of California, Los Angeles, with tear gas and rubber bullets, UC CIO Bachher went on the record to address just how much of the university’s money was connected to Israel. His answer, reported by Teresa Watanabe of the Los Angeles Times, was that of the UC’s $175 billion in assets under management, $32 billion would be affected by students’ divestment demands. This figure includes not just direct investments in firms and weapons manufacturers doing business in Israel, but also the university’s extensive investments in passive index funds like those offered by Blackrock and the nearly $12 billion it has parked in US treasury bonds.

On the one hand, Bachher’s inclusion of US treasury bonds indicates the real limits of “divestment” given the US government’s status as the world’s foremost supplier of arms to Israel. On the other, his comment drips with irony and condescension. Including treasury bonds in his accounting both inflates the appearance of the university’s financial connections to Israel and mocks student protesters’ inability to comprehend either the core geopolitical reality of the situation or the basic mechanics of the financial system. With protests still roiling the UC’s campuses and being met with extreme repressive force, Bachher demonstrated no interest in sincerely engaging with protestors, instead dismissing their grasp of the university’s finances as another “bumper-sticker approach.”

Such a characterization arrogates authority over university finances to a select few. That, after all, is the endowment’s structural function. The rapid growth of endowments both indexes and fuels the concentration of control of university life in the hands of a financial elite. That consolidation is part of the broader corporate turn within higher education, including increasing reliance on more precarious and low-paid non–tenure track academic workers; increasing tuition costs and consequent student debt; and the defunding of public education systems amid their turn to capital markets and the expansion of their investment portfolios.

To build systems of higher education that work in service of the public good will depend on clear-eyed organizing efforts able to challenge these longstanding structural transformations and allow input from on- and off-campus constituencies with whom universities interact. The wave of student protests demanding that their institutions divest from Israel’s war machine should properly be read as a crucial piece of the project to redemocratize the university.

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