Op Ed: Divestment: A Misguided Debate

Letter to the editor highlights the insignificance of divesting as compared to the entirety of Exxon Mobil's value...

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Via the Cornell Daily Sun, 2/5/13

To the Editor:

Re: “Editorial: Divesting Selectively” Opinion, Jan. 29

I’m all for divestment. Yet, unfortunately, the vernacular on divestment within The Sun and around campus has amounted to little more than fantastical statements. Let me illustrate.

The portion of our endowment that would be divested is found primarily in the Resource Related section. Within Resource Related, five managers make up approximately 8.2 percent of our entire endowment and are listed as follows: Cargill, Gresham, RMS, Riverstone and NGP. RMS manages renewable timberland and is a testament to how profit can coincide with conservation. Cargill, Gresham and Riverstone all manage a wide basket of commodities that include anything from bauxite to gasoline, while NGP is heavily invested in fossil fuels. Assuming the basket managers each have half of their holdings invested in fossil fuels, we approximate that 38 percent of our 8.2 percent of the portfolio is invested in fossil fuels. Adding on an additional 1.4 percent from equity exposure, we can generously approximate that 4.5 percent of the endowment is somehow related to fossil fuels.

Consequently, roughly $239 million of Cornell’s $5.3-billion endowment is invested in fossil fuel or 0.06 percent of Exxon Mobil’s $410-billion market cap. Of course, all change starts somewhere, so if the top 25 endowed universities decided to divest their fossil fuel exposure, the collective value of $9.6 billion would total roughly 2 percent of Exxon Mobil’s market cap. To illustrate how insignificant this is, eight days of average trading volume for Exxon Mobil exchanges more money than the entire $9.6 billion across these top 25 endowed universities. That’s just one company.

One of tenets of investing is the concept of diversification — don’t put all your eggs in one basket. In Q4 of 2008, our endowment posted a 16.9-percent loss, $850 million gone in an instant. Six months earlier, the endowment rose 2 percent despite equity markets already falling. The simplistic and much abridged reason: commodities. In the first half of 2008, the PowerShares Commodity Index gained over 60 percent. Assuming Cornell’s endowment had a relatively small allocation of 15 percent in commodities (data is not available), the endowment profited nearly $500 million, twice current fossil fuel investment. While the bubble imploded shortly thereafter, commodities outperformed equities by a 20-percent margin throughout the crisis. The reason why we did not lose considerably more than 16.9 percent is because of the relative performance of defensive assets such as commodities. Diversification! Figure-wise, the 20-percent relative margin of commodities over equities potentially saved us well over $200 million — money that could bring Gates Hall, 25 endowed professors, and full tuition endowments to more than 100 students a year.

I truly understand how passionate people are over this issue. This is not a manifesto meant to belittle a movement against global warming of which I count myself a member. There are solutions; divestment is just not one of those.

Views expressed in News posts may not be those of Cornell University. No endorsement is implied.