Hedge Funds Are Squeezing Universities for Billions of Dollars and Driving Millions of Students into Deep Deep Debt

Elizabeth Parisian, Hedge Clippers

How is it that a university founded to provide free education to the children of immigrants and later dubbed the “Harvard of the Proletariat” would today be more recognizable in a lineup of institutions known for saddling its students in debt?

Two words: Hedge funds.

Alyssia Osorio is an undergrad at CUNY’s City College of New York. When she earns her diploma in May, she’ll join the 70 percent of college seniors who will graduate with significant student debt, owing some $20,000 in loans for attending the nation’s first-ever public university.

It’s no accident that the price tag for higher education is on such an uptick. Rather intentionally, billionaire vulture capitalists have, in the last decade, increasingly turned to ransacking college endowments (and public pension funds) as their personal pots of gold.

Bloomberg news had the scoop in its coverage of a first-of-its-kind report released this week on these lightly regulated and expensive investment vehicles run by the ultra-wealthy — and the mind-boggling figures and fees they siphon from university endowments, once synonymous with teaching, learning and lower tuition and scholarships.

According to “Endangered Endowments: How Hedge Funds are Bankrupting Higher Education” – jointly issued by a new, decentralized war room operation of street-theater activists and dark money researchers called “Hedge Clippers,” and the more venerable American Federation of Teachers – university endowments paid an estimated $2.5 billion in fees alone to hedge fund managers in 2015, an amount that could have provided 31,000 college students with full-ride scholarships equivalent to what Alyssia now owes.

Like CEO pay, these fees are not tied to performance. In fact last year was the worst recorded since the financial crash for this class of investors.

“The school administration prioritizes things like paying fees to billionaire hedge fund managers when classroom ceilings are leaking, and the escalators are broken,” Alyssia pointed out. “It’s really frustrating to try to access your education in a place that is so neglected,” adding that this sends a message that “politicians and their wealthy donors don’t care” about students at CUNY.

Her original plan was to work her way through school, but in 2011, New York Governor Andrew Cuomo raised tuition, and her part-time retail job left her struggling with monthly expenses.

Alyssia is clear that state tuition hikes, CUNY’s hedge fund investments and her reliance on student loans are connected. “CUNY has a history of providing free and accessible education to the people of New York City, but now we find out in this report that students are paying at least $700,000 a year in fees to hedge fund managers? I’m pretty sure that every CUNY student has an opinion of where that $700,000 could be better spent.”

The senior raised in a middle-class household is now facing real fears about about being able to make the payments on her student loans after graduation. “You go to school to learn and grow, but also to come out of it with some semblance of financial security along with that diploma. It’s terrible to think that a handful of billionaire hedge fund managers are making a killing, while some CUNY students must choose between buying groceries or a monthly Metro Card.”

“Endangered Endowments,” also exposes the systematic means that hedge funds have used to raid these college funds. It’s a viral infographic you can picture in your sleep: Over the past two decades, hedge fund managers and other finance industry executives have nearly doubled their presence on university boards. No coincidence that this increased presence has schools putting larger and larger portions of their endowments into hedge funds. The average endowment now has 20% of its funds allocated to hedge funds—and the high fees that go with it.

And that just opens the floodgates to other conflicts of interest and profiteering. Take Ohio State University, for instance, which has 21% of its $3.6 billion endowment invested in hedge funds. It is now seeking to privatize its energy services, a move that former President Gordon Gee in March described as necessary in order to offset decreased funding from the state.

“The administration would have us believe that we have to choose between improving the efficiency of campus buildings or funding our academic mission, but this is a false choice,” says recent graduate Lainie Rini, who estimates that Ohio State paid $19 million in hedge fund fees in fiscal year 2015 alone.

Her solution? If the university were to thoughtfully back away from hedge funds – or if graduates and students activists like she and Alyssia demanded such divestment – it could pay for the energy improvements itself without selling university assets off to private interests.

“Ohio State is one of the most financialized schools in the country,” Lainie continues. “The administration is interested in short-term profits rather than focusing on the long term goal of creating a healthy and thriving campus community. OSU’s investment in hedge funds shows that the school is acting like a business, and ignoring its core academic mission.”

Billionaire hedge fund managers may not have counted on the fact that the students they are robbing actually have real academic chops – and they learned how to organize on campus.

Want to get involved with students and graduates who are organizing protests and teach-ins all semester, coinciding with the Hedge Clipper/AFT report? Get involved with the USAS-backed divestment movement here. And follow: @GoHedgeClippers