Background
Yale was one of the first institutions to address formally the ethical responsibilities of institutional investors. In 1969 Professors John Simon, James Tobin, William Brainard, and Charles Lindblom along with Yale graduate students Charles Powers and Jon Gunnemann conducted a seminar entitled "Yale's Investments," which explored the ethical, economic, and legal implications of institutional investments. Subsequently, Yale became, according to The New York Times, "the first major university to resolve this issue by abandoning the role of passive institutional investor." Read more about the history of Yale’s ethical investing policy here.
Governance
The Corporation Committee on Investor Responsibility (CCIR) considers and makes recommendations to the board of trustees on policy matters related to ethical investing. It is supported by the work of the Advisory Committee on Investor Responsibility (ACIR), whose membership consists of Yale alumni, staff, faculty, and students. The Investments Office works with the ACIR and CCIR to implement policies adopted by the board of trustees. Learn more about Yale’s ethical investment policies here.
Climate Change
Climate change poses a grave threat to human existence and society must transition to cleaner energy sources. Recognizing that greenhouse gas emissions must be addressed, the Investments Office asks Yale’s Endowment managers to incorporate the costs of carbon emissions in investment decisions, and not to hold companies that refuse to acknowledge the social and financial costs of climate change and that fail to take economically sensible steps to reduce greenhouse gas emissions. Under Yale’s approach, investments with large greenhouse gas footprints are disadvantaged relative to investments with small greenhouse gas footprints, and investment capital flows towards less carbon-intensive businesses and away from more carbon-intensive businesses. Read the former Chief Investment Officer’s update on climate change here.
Assault Weapons
The Yale board of trustees has adopted a policy prohibiting investment in assault weapon retailers. Specifically, Yale will not invest in any retail outlets that market and sell assault weapons to the general public. Read the full statement here.
Private Prisons
Based on the recommendation of the Advisory Committee on Investor Responsibility, the Yale board of trustees adopted a policy making ineligible for investment CoreCivic and GEO Group, the two largest private prison companies, which dominate the industry. Read the board’s statement here. Yale does not have any investments in these two companies (or in any other private prison company), and this policy makes investment in these two companies impermissible.
Puerto Rico
After decades of depressed economic activity and unsuccessful policy initiatives, Puerto Rico’s debt levels rose to unsustainable levels, leading the Commonwealth to default on July 1, 2016. In September 2017 – while Puerto Rico was in the midst of restructuring its finances – Hurricane Maria caused widespread destruction and plunged the island into a severe humanitarian and economic crisis. As Puerto Rico’s plight grew, a coalition of activists directed their energy towards Puerto Rico’s creditors – in particular, hedge fund managers – calling on them to divest or forgive holdings of Puerto Rican debt. When campus groups at Yale, as well as other state and local organizations, demanded that the University disclose all investments in Puerto Rican bonds, cancel all those held by Yale, and fire investment managers who refuse to sell or forgive the debt, the matter was referred to the ACIR. The ACIR concluded in January 2018 that divestment from Puerto Rican debt is not warranted when an investor is abiding by the applicable legal framework in a process in which the debtor’s interests are appropriately represented. Read more here.
Yale's Wind Farm
Investments in wind can provide substantial economic returns to the University, while helping achieve sustainability goals. Beginning in 2007, Yale's managers, in conjunction with local wind power development firms, identified several sites with attractive capacity factors. The University's partners initiated development on a handful of sites. One site in particular, Record Hill Wind, is fully operational and was transferred from the Endowment to the University, and its management is now overseen by the Yale Office of Facilities.
Frequently Asked Questions
Why doesn’t Yale disclose its Endowment holdings?
Yale’s longstanding policy is to preserve the confidentiality of its Endowment holdings, chiefly to honor its contractual obligations to third party investment managers. Yale’s investment partners are among the best in the world, and part of their competitive advantage (and therefore Yale’s) is that they are skilled at finding differentiated investments. Even when contractually permitted, the disclosure of Yale’s holdings would diminish that competitive advantage.
In addition to maintaining the confidentiality of portfolio holdings, Yale seeks to maintain the confidentiality of its manager relationships. Because a key ingredient to Yale’s success is identifying the best investment managers, disclosing those relationships would likely increase competition for access to those managers.
What does it mean for a company to show up on Yale’s Form 13-F?
Although Yale’s Form 13-F lists securities over which Yale exercises investment discretion, it does not often (or even usually) mean that Yale has invested directly in that company. In most cases, a holding listed on Yale’s Form 13-F results from a liquidating distribution of that security from a third-party investment manager.
Yale manages the Endowment primarily by hiring third-party investment managers with a differentiated advantage in finding investments. When a manager is ready to exit the position, they may choose to liquidate it for cash and distribute the cash to investors, or distribute those securities directly to investors. Yale’s general practice is to sell the securities it receives from its managers, subject to legal or other constraints. However, if the Form 13-F reference date falls between the date Yale receives its shares and the date Yale completes an orderly liquidation, a liquidating position will show up on Yale’s Form 13-F. A company can, therefore, show up multiple times on Yale’s Form 13-F when an orderly liquidation occurs in several distributions across multiple quarter-ends.
Another reason a security could show up on Yale’s Form 13-F is if it was gifted to Yale. Similar to distributions from third-party investment managers, Yale’s general practice is to sell the gifted security, but timing could be such that Yale happens to hold it on the Form 13-F reference date.
What does it mean for an index fund or ETF to show up on Yale’s Form 13-F? Does Yale’s ethical investment policy preclude it from holding an index or ETF that might include a prohibited stock?
In addition to single-name securities, Yale’s Form 13-F may disclose holdings of index funds and/or exchange-traded funds (ETFs). Index funds are commonly held investment funds that have broadly-diversified portfolios that track specific benchmarks, such as the S&P 500. The sponsor of the index fund does not make active bets on the underlying securities; rather, the basket comprising the portfolio is based on a passively determined cross-section of the market the benchmark seeks to capture. Index funds and ETFs are employed by the Investments Office as a passive portfolio management tool to rebalance the Endowment and not as an active strategy. Unlike relationships with third-party investment managers, the Investments Office does not engage or interact with sponsors of index funds and ETFs.
Any single position held by the Index or ETF typically would represent only a very small percentage of the Endowment. For example, Yale’s Form 13-F disclosed that Yale held an investment in the Vanguard FTSE Emerging Markets ETF (VWO) as of December 31, 2021. As of that date, Yale’s exposure to VWO represented 0.8% of the Endowment’s value, and the ETF comprised 5,306 different stocks in emerging markets around the world; thus, any single company represented a very small percentage of the Endowment. In addition, because rebalancing can occur as often as daily, Yale’s exposure to a given index fund could change frequently. Given the purpose and limited use of index funds and ETFs in the Endowment, and their importance as a portfolio management tool, Yale’s ethical investment policy does not prevent the holding of such funds.
How quickly can Yale dispose of an investment if it becomes the subject of a divestment policy?
Yale’s third-party investment managers typically have full control over the investments they manage. As a result, if Yale’s divestment policy changes such that an existing holding becomes subject to divestment, divestment timing will depend on the relationship Yale has with the manager, including the pre-existing terms of its contractual agreements. In general, if Yale is in good standing with the manager and the underlying investment is a publicly-traded security, there is a high likelihood that the manager can eliminate that security from Yale’s account without much delay. However, if either of those conditions is absent or if the account is commingled with other investors, then Yale may be required to hold the investment for a longer period of time. The Investments Office diligently works to pursue the divestment until it is complete.