The Endowment and Africa

Harvard’s endowment recently posted an impressive 21.4 percent growth to $32 billion in fiscal year 2011 thanks to investments made by the Harvard Management Company, the University’s asset management firm. Although the fund underperformed the S&P 500 index, HMC’s returns were 1.2 percent ahead of the portfolio benchmark.

However, in June, the Oakland Institute, an independent California-based policy think tank, released a report alleging that HMC and other university endowment managers had invested in  Emergent Asset Management. Emergent, an alternative investment fund comprised of private equity and hedge fund strategies, often makes agricultural and real-estate investments in developing regions such as Africa. The Oakland Institute report alleges that Emergent takes advantage of arbitrage opportunities in Africa such as buying land and selling it at a higher price when demand is increased or by cultivating crops solely for export. Oakland Institute Director Anuradha Mittal has claimed that such strategies result in food shortages and ultimately utilize lax property laws to exploit indigenous farmers.

At the current stage, we do not have adequately available evidence to consider either HMC or Emergent at fault for the purported economic wrongdoings outlined in the Oakland Institute report. Without substantial proof that Emergent’s investment strategy results in land grabbing, we have no basis to condone the criticisms made by the Oakland Institute and Mittal.

We must acknowledge, however, that as Harvard’s endowment manager, HMC is responsible for both the financial and social implications of their investment decisions. HMC must always be cognizant of the impact of their asset allocation, and as Harvard students, we have the right to hold them to high ethical standards.

HMC, a fund connected so deeply with the basic operations and maintenance of Harvard, should not uphold a practice of facilitating economic abuse in developing nations. Harvard’s research facilities, extensive financial aid, prolific faculty, and vast resources should not come at the price of third-world exploitation. One of Harvard’s core purposes is to ensure the betterment of society by creating the leaders necessary to enact social change. HMC should thus be wary of reversing the strides that we have made to promote positive growth and economic advancement in historically disadvantaged countries.

In general, HMC’s stated intent to move from risky investments such as domestic equities to more stable assets such as real estate is positive because it safeguards Harvard’s endowment from potentially debilitating losses. However, when considering the entire scope of its investment strategy, HMC must ensure that these low-risk acquisitions are socially responsible. In the 1980’s, Harvard’s decision to divest from South Africa prevented financial enablement from reaching the apartheid government. In the same fashion, today, HMC must remain vigilant in making decisions that assist rather than exploit developing nations.

“Land grabs” as highlighted by Mittal and the Oakland Institute are not just the problem of investment funds. In the African countries where agri-fund exploitation occurs, a large part of the responsibility lies with the governments of some African nations who legitimize such practices. We must hold not only those who invest in these properties responsible, but also the institutional systems that make these abuses possible.

Ultimately, HMC must perform extensive due diligence on these investments in order to ensure that the mission of Harvard is not undercut by ill-allocated assets. The verdict on Emergent is still unclear, but in an increasingly global investment world, the issues like this will come up in the future. HMC should take this moment to reaffirm a commitment to corporate social responsibility in the developing world.