Externally Managed Portfolio Poses Challenge To Divestment Campaign

On September 2, Reed’s Students for a Democratic Society (SDS) and Students for Justice in Palestine (SJP) clubs issued a joint Instagram post in which they urged Reed students to email Reed’s Board of Trustees, asking them to divest from corporations and institutions that are associated with the state of Israel, or the human rights violations committed by the Israeli government. SDS also put up posters around campus with this messaging, messaging such as “No more money for Israel’s crimes” and “Tell Reed [to] divest from genocide [sic].” These posters contained QR codes that would automatically write an email to 26 members of the Board of Trustees, including Reed College President Audrey Bilger, which students could sign before sending. 

The email states that “[i]n light of the ongoing Israeli occupation and ethnic cleansing in Palestine and the role of certain corporations, it is crucial that we reflect on the implications of our investments” and it furthermore argues that to align Reed’s investments with institutional values such as “social justice, human rights, and ethical investment,” the college must “phase out current investments into Israel” along with “all arms companies” and “cease making new investments in said areas.”

Seeking to understand which of Reed’s investments are of concern to students, the Quest attended an SDS meeting on Monday, November 6, which was advertised to the public, and, around halfway through the meeting, announced their journalistic intentions. Afterward, the Quest discussed the divestment campaign with an SDS member, who expressed their interest in urging the college to have more transparency with its investments. According to those who spoke with the Quest, the club has been unable to find any public records on Reed’s investment portfolio and do not know if Reed is directly investing in companies associated with the state of Israel. 

The Quest did similar research into the college’s investments. Reporters accessed Reed’s Return on Investment portfolio through a ProPublica database of Form 990 tax records, alongside documents from the IRS’s Tax Exempt Organization Search, and were unable to find information beyond Reed’s net return on investment, which in 2021 was $38,832,631. Form 990 is an IRS document used to give the public financial information on nonprofit institutions. The Quest then reached out to Reed’s Chief Investment Officer Erik Bernhardt to find out more information on the college’s investment portfolio.

Bernhardt stated that “[l]ike the vast majority of college endowments, Reed does not directly invest in any individual companies via stocks or bonds. Our funds are managed by external investment managers who pursue a wide variety of different strategies.” In fact, Reed, like many other colleges, “[does] not have the ability to dictate or control underlying investment choices within the portfolios.” 

On the topic of transparency, Bernhardt said that “individual holdings within these externally managed portfolios will change dynamically over time,” and due to the use of quantitative strategies, or data-driven investing, portfolios “may change entirely from day to day.” Due to this, Reed itself can only “see some but certainly not all of the positions in the endowment (of which there are thousands).” Also, with all external investment managers they engage with, Reed “sign[s] confidentiality agreements not to disclose their portfolio positions.” The specifics of the ways in which the endowment is invested is the intellectual property of the external investment managers and is not shared with Reed. 

Bernhardt also shared Reed’s policy on investment responsibility, which was prepared and adopted by the investment committee and the Board of Trustees in 1977, and approved by the Board of Trustees in 1978. That policy contains a statement of Operating Principles and Basic Procedures of Reed College, which was established in 1971 and states that “the college fosters and defends academic freedom and avoids taking positions on political issues that do not affect the college or higher education directly.” It also cites a 1973 endowment investment policy, which includes the statement “It is desirable that all funds that Reed holds for investment […] continue to be pooled and invested in such a way as to produce a maximum total return therefrom consistent with the reasonable safety of such funds and economy in the investment thereof.” 

The citing of the 1973 policy, according to the document, is done “not to displace the significance of moral, social and political issues in share ownership, but rather to emphasize that share ownership does not constitute College approval of all of the policies of any complex share-held corporation, or, for that matter, of all the policies of the dozens of corporations whose shares it may hold at any moment of time. To own is not necessarily entirely to endorse. The College recognizes that extensive resort to nonfinancial judgments in portfolio selection would weaken the position that ownership carries no presumption of approval on non-financial matters.” 

Essentially, it is extremely difficult for the college to alter its investments, not only because of the limited control Reed has on their investments, but also because of the 1977 policy which prevents Reed from making investment decisions for any reason other than maximizing profit, except in the case where “the issue at hand is of a compelling social or moral character and where the action taken reflects widely-held, perhaps almost universally-held social or moral positions.” 

However, the Board of Trustees has influenced investment policy in the past. In October 2021, the trustees, according to their Endowment 2022 Report, directed the investment committee to prohibit any new investments in “public funds or private partnerships that are focused on the oil, gas, and coal industries, including infrastructure and field service,” along with “phas[ing] out all such existing investments.” The report confirms that as of 2022, “no new investments have been made in any public or private fund that is focused on the fossil fuel industry or any related sector.” 

This is due to the fact that, according to Bernhardt, “the endowment historically had a small allocation dedicated to oil & gas investments in the form of private partnerships,” and this allowed the Board to move forward with phasing out the existing investments and ensure no new investments into fossil fuels were made after — according to an update from Chairman Roger M. Pulmutter of the Board of Trustees — “years of thoughtful community discussions.” A similar allocation is not made for, say, companies associated with the state of Israel. If such investments existed, they would be across, as Bernhardt said in an email to the Quest, “a wide array of different sectors and industries,” and it would be “impossible” for the college to ask their external investment managers to refrain from investing in most types of companies.