Sometimes being wealthy is complicated. Just ask Stanford University. The January 18th ASSU Senate bill, “To Ensure Endowment Investment Responsibility,” was passed with a 9-3 majority (with two abstentions), the bare minimum required. It was written and sponsored by ASSU Senator and Chair of the Senate Advocacy Com mittee Omar Shakir, based on pre sentations made to the Senate by The Stanford Coalition for Investment Dis closure (SCID) and Linda Kimball of the Stanford Management Company.

Most contentiously, it proposed that the “Undergraduate Senate strongly believes that the Board of Trustees needs to take steps in the direction of investment disclosure.” In a second vote, without this clause, the bill was passed unanimously. As suggested by their name, SCID’s ultimate objective is full disclosure of the university’s investments, in order to ensure that these investments are held to socially responsible standards. Stanford University’s endowment of $10 billion is one of the largest in the nation, approximately equal to Princeton’s and behind only Harvard’s and Yale’s, according to recent data. Most of Stanford’s endowment has been overseen by the Stanford Manage ment Company (SMC) since 1991 in the Merged Endowment Pool (MEP), which has boasted stellar and consis tent returns since its inception. What do I mean by stellar? How about an 18% return for the fiscal year ending June 2004, or a nearly 8% return over the past three years of World Trade Center attacks, severe recession, and war in the Middle East? And what do I mean by consistent? How about a ten-year annualized rate of return hovering above 15%? In cold, hard assets, that represents a growth in the MEP from $2.6 billion in June 1994 to more than $10 billion today. In other words, the fiscal acumen of the SMC is practically irreproachable.

This is fortunate for Stanford because strong performance of the MEP is integral to the well-being of Stanford students, current and future. Although the size of Stanford’s endowment is comparable to the very best American universities, Stanford is relatively under-endowed due to the size and scope of its programs. Stanford’s endowment provides for only 16% of its operating budget. At Harvard, the endowment provides upwards of 32%, and at Princeton, where the endowment size is more or less equivalent to Stanford, the endowment provides 36%. Thus endowment income at Stanford is imperative.

The risk of investment disclosure is the risk of decreased endowment income: income that is used to pay for financial aid packages, to attract world class professors, to fund student activi ties and groups, and to ensure that uni versity facilities are up to scratch. The problem with full investment disclosure is that it would require the SMC to reveal its entire investment strategy, and in effect “publicize” its good ideas. As Linda Kimball of the SMC noted in the San Jose Mercury News, “investment strategy is competi tive.”

If Stanford was forced to disclose its investments to the public, its com petitive advantage, gained through comprehensive research and analysis, would be compromised. Moreover, the threat of disclosure would almost certainly deter many hedge funds that could promise superb returns. Chief Investment Officer of the Stanford Management Company, Mike Ross, explained why full disclosure would diminish the endowment in an exclusive interview with the Review. “One of the challenges with full disclo sure is that most of the highest quality investment managers require confiden tiality agreements,” he explained, “so if Stanford’s endowment were fully disclosed, then Stanford would find it very difficult to invest in alternative asset classes, where confidentiality agreements are prevalent.” Alternative investment classes include most invest ment classes other than stocks and bonds.

According to internal calcu lations at the SMC, if Stanford had decided 10 years ago to invest under the conditions of full disclosure – with out alternative asset classes – then the MEP would be about “$4.2 billion less today.” For the future of a university that wants to offer absolutely the best and most accessible undergraduate educa tion in the world, full disclosure could be devastating. “Obviously we all want a strong endowment,” ASSU senator Chris Nguyen said. Nguyen abstained from voting on the investment disclosure bill because he had reservations with both the political and ethical slant of SCID and also the effect that disclosure could have on Stanford’s endowment. The question is whether the potential ethical transparency to be gained from such a disclosure is worth the risk to Stanford’s financial well-being, to students’ financial aid packages, tuition and education.Certainly, SCID believes that our ethical responsibility outweighs the risk, despite assurances from the SMC and others that funds are indeed being invested ethically. But perhaps SCID has a very fixed definition of ethics.

SCID, though they lack a website and are not generally visible on campus, do not attempt to hide their strong political affiliation. Some of their members are involved in the Stanford Labor Action Coalition, the extreme leftist labor rights group on campus. SCID is also a member of “Converge!” which bills itself as “the home of progressive activism on the farm.” And SCID advertises through articles in the Progressive, Stanford’s leftist publication, and thus clearly hopes to attract leftist members.

There is little question that SCID is a leftist organization. The more important question is whether their requests for disclosure are driven by sincere ethics, or whether they merely serve to mask a political agenda. According to Ryan Schwartz and Anna Mumford in the Progressive, “SCID is part [of] UnFarallon, a national coalition of progressive NGO student groups that are also pressuring their universities for investment disclosure.” UnFarallon bills itself as “a coalition of national and campus-based organizations seeking to make private capital more transparent, and more socially and environmentally responsible.

”It has taken aim at Farallon Capital Management LLC, one of the world’s largest and most successful hedge funds. Farallon is run by Thomas Steyer, an alumnus of Stanford’s Graduate School of Business. Farallon manages a portion of Stanford’s assets, but SCID believes that Farallon may be managing those assets irresponsibly. UnFarallon, however, clearly has a political agenda beyond “investment disclosure” and “ethics.” Its website sponsors read like a who’s who list of leftist student organizations, including the Student Environmental Action Coalition and Students Transforming and Resisting Corporation (STARC).

STARC in particular advocates a radical socialist agenda, declaring in its mission statement a determination to “challenge a social and economic system that exploits resources while reinforcing privilege and oppression,” and providing links to the Young Communist League and the Young Democratic Socialists. Nguyen worries that SCID would use investment disclosure to advocate a leftist political agenda. “I wouldn’t be surprised if it happened,” he said. “I believe that [SCID] is truly liberal.”Nguyen also remarked that ethical investing is not a matter of black and white.

“Ethics is in the eye of the beholder,” he notes. “There is some reason behind the ethical concerns of SCID, but what do the ethical concerns constitute?” He offered the example of investment in companies that do business in Israel. To some, such an investment might be considered unethical. But the same leftists might not object to a company that did business in oppressive socialist Venezuela. For his part, ASSU bill-sponsor Shakir said that he would be an “idiot” to ignore the fact that many of SCID’s members are liberal.