Columbia In The Paradise Papers: Its Opaque Investment Structure
Written by Youngweon Lee
In early November 2017, a German newspaper, Süddeutsche Zeitung, obtained a series of documents dubbed the Paradise Papers containing information about the offshore investments of the world’s wealthiest people. The International Consortium of Investigative Journalists then partially released them to be publicly available. These documents “[shed] light on trillions of dollars that move through offshore tax havens” (NYT). Corporations and billionaires aren’t the only ones to hide their income overseas, however; many universities, including Columbia, were revealed to be investing and hiding endowments in offshore “paradises” such as the Cayman Islands (TCU) or the Isle of Man (Columbia).
According to the New York Times, thanks at least in part to “lucrative tax breaks” and less traditional investment schemes (ex. private equity and hedge funds as opposed to United States equities or other more traditional methods), many universities have seen greater returns on investments as compared to previous decades. For example, Columbia’s endowment increased from about $7 billion in 2007 to $10 billion in 2017. Yale, another school named in the Paradise Papers (Yale Daily News), has seen a $5.3 billion increase in its endowment over the past decade. Princeton, also named (The Daily Princetonian), had an endowment of $16.3 billion in June 2008, which increased to $22.8 billion by March 2017. Other universities named in the documents include Stanford, Dartmouth, and NYU.
There isn’t a correlation that can be drawn between the fact that these schools were in the Paradise Papers and that their endowments have increased. The manner in which universities like Columbia invest overseas may be unscrupulous, but it is not necessarily illegal.
Incomes generated by universities are usually tax-exempt unless the said income is “from enterprises unrelated to their core missions” (NYT). In order to avoid being taxed for income from aforementioned investment schemes (such as private equity and hedge funds), universities invest in so-called “blocker corporations,” which are investment companies established in tax havens like the Cayman Islands or the British Virgin Islands. They, in turn, invest endowments and produce returns. This way, there is a “corporate layer” between universities and private equity funds, and the universities don’t have to pay the taxes that they would owe without the blocker layer. It is customary for universities not to publicly discuss where and how they are investing, which creates an added level of opacity.
The Offshore Leaks Database, compiled by ICIJ, shows that as of 2014 (or as recently as 2015, according to the NYT), Columbia was holding shares (1.1%) in Ferrous Resources, an iron ore mining company in Brazil. This company is involved in a controversy over a pipeline project; it planned a 480 km to 525 km (depending on sources) iron ore pipeline that is on the border of two different important ecosystems. This pipeline, which would carry powdered ore suspended in water, would pollute the local ecosystem, damage agriculture, and use enormous amounts of water that the surrounding communities need for farming and day-to-day activities (source).
The same database also shows that Columbia was holding shares in Genesis Limited and H&F Investors Blocker Ltd., both registered in Bermuda, as of 2014. Genesis Limited, incorporated in 1980, is linked to other universities including Princeton, NYU, Johns Hopkins, and RPI. According to NYU Local, NYU spokesman John Beckman said, “Genesis is not and was not a blocker. It is a self-insurance consortium, or self-insurance pool, that we are in with a group of other universities.” However, he did not immediately explain why it is based in Bermuda. On the other hand, H&F Investors Blocker Ltd. has a name that is fairly unequivocal about its purpose. H&F was “formed to invest with” Hellman & Friedman, a large private equity firm founded in 1984 with locations in San Francisco, New York, and London. It was incorporated in 2003, and the database shows that other schools associated with it include Dartmouth, Johns Hopkins, USC, and Stanford.
When asked via email whether Columbia still holds shares in any of these companies, a university spokesperson declined to comment.
According to Stephanie Grove, Ademali Sengal, and Brendan Moore from the Roosevelt Institute at Columbia, Columbia invested $577 million in East Asia and the Pacific, $4.3 billion in Central America and the Caribbean, and $311 million in Europe (including Iceland and Greenland). These numbers are from Columbia’s annual tax return (Form 990) from 2015 to 2016. Barnard invested $76.7 million in Central America and the Caribbean, and last year, it was the college with the highest percentage of its endowment in hedge funds: 65% of the college’s endowment was in hedge funds.
Barnard has also been linked to Baupost Group, one of the biggest hedge funds in the world, which owns nearly $1 billion in Puerto Rican sales tax debt (Reuters). A letter from “a coalition of progressive groups” to President Sian Beilock, published on Hedge Clippers last October, asked for “a due diligence investigation into this matter by your endowment staff and your investment consultants” in light of “the disturbing profit-driven tactics of Baupost Group in Puerto Rico threaten the lives and livelihoods of millions of Puerto Ricans.” Other universities that hold shares in Baupost include Harvard, Yale, and Princeton (The Intercept). It is unclear if Barnard is continuing to invest in Baupost. Investure LLC used to manage the investment of Barnard’s endowment, 4% of which was invested in fossil fuels. The Columbia Daily Spectator reported last September that Barnard was to change its investment manager to Strategic Investment Group by the end of the month, following a decision made in March 2017 to divest from companies that deny climate change.
Columbia has a history of activism related to divestment. Notably, from the late 70’s until 1985, students called for divestment from the South African government and the Apartheid. This culminated in the blockade of Hamilton Hall in April 1985 and the trustees subsequently voting to fully divest in October 1985. More recently, in 2015, Columbia became the first university to divest from private prisons. Last March, Columbia divested from thermal coal producers, following a proposal from the Earth Institute, a substantial but not full victory for Columbia Divest for Climate Justice. Ongoing divestment campaigns include Apartheid Divest (calling for divestment from Israel) and Columbia Divest for Climate Justice (calling for divestment from all fossil fuels, including oil and gas).
The structure of investment through blocker corporations, which creates a total lack of transparency, relates back to the sort of moral questions that these divestment organizations raise. Columbia Divest for Climate Justice’s website pointedly asks, “Columbia profits from climate change. What are you going to do about it?”