A report by the Roosevelt Institute at MSU found MSU's decision to invest in hedge funds, decrease its annual endowment and spend high amounts on interest rate swaps have harmed students and have cost the university millions.
The Financialization of Higher Education at Michigan State University report looks into how MSU has shifted its revenue model, its annual endowment spending on university programs, its investments in hedge funds, its debt levels and more.
According to the report, MSU’s decision to “decrease annual endowment spending to 4.6 percent, invest in hedge funds (and pay the astronomical attendant fees) instead of Standard and Poor’s 500 index, and gamble on interest rate swaps have cost the university a staggering $493.6 million, enough to provide the full cost of attendance for 20,111 in-state students for one year.”
Aman Banerji, a program manager at the Roosevelt Institute in New York and co-author of the report, said the Roosevelt Institute began to look at the financialization of universities like MSU about three years ago.
“We started it because we were working with a group that was looking at the financialization of public institutions, in particular they were looking at local governments,” Banerji said. “A group of us students, including some folks from Michigan State and a bunch of other places across the country, were interested and we all went to a training on that and from that, we decided to start looking at higher education as well because we felt like it was possible that a large number of problems were also present in the higher education industry.”
Brigid Kennedy, co-chapter head of the Roosevelt Institute at MSU and co-author of the report, said this is the first report in which the institute has focused on one particular school.
“I think that students have an idea that something weird is happening with money because, like, tuition keeps going up and people are having more and more trouble affording to live and work here,” Kennedy said. “And we notice that, but we don’t really know why, so I think that was a big part of why we started doing this here.”
Kennedy said the institute plans on taking a look at other universities, but MSU was a good place to start.
“I think people have a right to know how the institutions they are a part of operate and, you know, this is their money, too,” she said. “If it is going to things that don’t reflect their values, if it is going to things that actively hurt them, they should have a say in that.”
Banerji said the institute has seen a standard trend of universities like MSU “becoming increasingly dependent on tuition revenue.”
“At the same time, students are less powerful in terms of government structures on campus, they have less of a say,” he said. “So, you have a point where the university, at least financially, is becoming more dependent on students, while at the same time it takes the voice of students less seriously and takes their concerns less seriously.”
The report also includes five recommendations for MSU to “reverse these trends and build a more democratic governance structure for MSU’s financial priorities.”
Among these priorities are ensuring student and faculty representation on the MSU Board of Trustees, implementing a tuition freeze, increasing programmatic spending, establishing financial transparency and restructuring MSU’s investment portfolio.
“I think we looked both at national trends and just at MSU specifically and looked at kind of what allowed this to happen here and then looked at how we would go about fixing that,” Kennedy said. “I think our first recommendation is about student and faculty representation on the Board of Trustees, which is clearly a big thing here right now, and it could help with a lot of problems, including this one.”
Kennedy and Banerji said the main statistics they found regarded tuition fees, annual endowment spending and hedge funds.
“Generally, I think what we found is that, you know, tuition and fees are rising, administrative costs are rising,” she said. “The way money is getting distributed and the way the way money is working within the university and outside of it is hurting students. And nothing will change until people start talking about it.”
Seven key findings of the report:
Kennedy said the report also looked into how members of the MSU community are represented on the Board of Trustees.
“One thing is very clear: investment policy at Michigan State University is rarely, if ever, made known to the people it affects,” the report said. “There are no systems in place to give students and faculty a chance to engage in open dialogue with administration and trustees on this and other issues.”
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Kennedy said they found there were 71 decisions on investment managers, or investing in hedge funds, at MSU during the Board of Trustees meetings.
“Those decisions were all made unanimously, with the exception of Scott Romney, who abstained a couple times,” Kennedy said. “So, there’s no discussion recorded in it because those decisions are already made by the time they show up to the meeting. So, even if you went to all the Board of Trustees meetings, you really wouldn’t have an opportunity to talk about what you think or to hear what they’re thinking about why they’re investing in that.”
Kennedy said a lot of investment decisions at MSU are made behind closed doors and away from the public eye.
“Within the trustees, there’s the finance committee, and within the finance committee there’s the investment advisory subcommittee, and within that you have four trustees, but also four external members who we don’t vote on and they’re not listed on the Board of Trustees website,” she said. “A lot of people probably don’t know that they have a lot of power over these decisions.”
Both Kennedy and Banerji said the report takes a close look into how MSU invests in hedge funds and how it is negatively affecting the MSU community.
“Hedge funds are an investment tool that are virtually unregulated,” Kennedy said. “They (MSU) can sort of invest in just about anything and they don’t really have to tell anybody what they’re invested in. So, as researchers too, it was really hard because we have no idea what these funds are invested in, but some of what we did find is that they were investing in distressed debt.”
Banerji said, based on his research, hedge funds are a pretty bad investment compared to the S&P 500 index.
“There is a fundamental difference between those two types of investments,” he said. “So, MSU invests in hedge funds and in its Board of Trustees meetings notes that what it’s targeting is matching this index called the HFRI index. The HFRI index has lost to the S&P 500 for the last 10 years at about 8.86 percent, on average.”
Banerji said they looked at all of the Board of Trustees minutes from the last decade, the investment office website where hedge funds are listed and about 10 to 15 years of financial reports.
“We’re sort of glad that Michigan State provides the information on which hedge funds they’re invested in, but the return on those hedge funds is not public information, so we make estimates and we look around at the market and that’s how we’ve gotten a sense on how hedge funds are performed,” Banerji said. “But in terms of Michigan’s money, and in particular hedge funds, they refuse to provide that information.”
The report’s conclusion said MSU, like public institutions nationwide, is operating more like a company or financial corporation than as an institution providing a public good.
Banerji said MSU's investment strategy is "deeply flawed."
“When you look at the higher education landscape right now, a lot of schools talk about themselves in a very different way than they act, and at MSU this is particularly true. MSU, of course, is a land grant institution. It’s designed to provide equitable education,” Banerji said. “That is far from what happens at MSU, as students will know quite well. The tuition costs continue to rise, faculty and instruction continue to be paid at very low rates."
Editor's note — Brigid Kennedy formerly worked at The State News, but is no longer affiliated with the organization.
