The University of North Carolina System is in crisis.
Hammered by the pandemic, its flagship school, the University of North Carolina at Chapel Hill, announced layoffs for student employees last month as it faces a projected $300 million loss. Various faculty and staff members have been cut as well. The COVID-19 fallout is hitting the entire UNC System, with North Carolina State University and East Carolina University bearing the brunt of it, alongside UNC-Chapel Hill. And yet, the UNC System holds more than $6.5 billion in its endowment fund.
In June, a collective of graduate workers petitioned the UNC-Chapel Hill administration, demanding all-remote instruction, no layoffs or furloughs, and funding for all graduate workers. To finance such a plan, the petition called for a redistribution of the school’s endowment. University leaders, who often regard the endowment as “untouchable,” dismissed the petition, which highlighted the need to examine such a massive financial resource and its opaque administration. As an economist and PhD student at UNC-Chapel Hill intrigued by the black box of public higher education finances, I decided to dig more into the history, functioning, and inequalities of the university system’s endowment fund. This is what I found.
The Investment Fund
In finance, an endowment fund pools money from various sources and allocates it across a diverse set of investments. Non-profit institutions such as public universities and charitable organizations use this as a way to meet some of their main expenses. The University of North Carolina System has utilized this type of revenue-generating mechanism for decades.
UNC System schools created organizations for the sole purpose of collecting money and investing. These usually take the form of foundations and investment funds, which are registered as non-profit corporations in the North Carolina Secretary of State’s office. While each university has its own set of organizations, in the past two decades, these have been pooled together into a single fund known as the UNC Investment Fund, or UNCIF. Of this giant pool of assets, UNC-Chapel Hill holds the largest share, with a $3.6 billion investment fund, followed by NC State’s $1.07 billion fund, according to the schools’ 2019 annual reports.
The most recent annual report issued by the UNC Management Company reveals information about the UNCIF’s performance and holdings. According to the report, the market value of the fund has increased by 60 percent in the past five years, adding nearly $2 billion worth of assets. It also reveals the types of investments in which UNC has been involved, including stocks and bonds, private equity, real estate, and energy and natural resources.
From UNC to UNC, Inc.
The history of the UNCIF is a long and complex story about bureaucratic restructuring and the corporatization of the UNC System. The first steps began with the creation of the University of North Carolina at Chapel Hill Institutional Development Foundation, Inc. in 1976. Among the main objectives of this institution was to “solicit, acquire, receive, hold, invest, reinvest, sell, transfer, administer, and manage property of all kinds” for the benefit of the university. This business-oriented strategy was reinforced in the 1990s, first with the creation of the UNC-CH Foundation Investment Fund (CHIF), and then with the recruitment of Notre Dame’s senior investment director, Mark Yusko, as the fund’s chief investment officer.
In 2002, Yusko pursued two major tasks. The first was the creation of the UNC Investment Fund (UNCIF) to pool together the assets from the entire UNC System. By that time, only a few universities had investment funds, among them UNC-Chapel Hill (created in 1995) and NC State (1997). In 2002, UNC-Charlotte and UNC-Wilmington created theirs. Today, the UNCIF has a total of 31 members, comprising the investment funds of most UNC System universities as well as other affiliated institutions, such as hospitals and foundations.
The second task Yusko pursued during his period as chief officer was the creation of the UNC Management Company, an institution whose main objective would be to provide investment management services for the entire system in a centralized and coordinated way. In a conversation with The Daily Tar Heel in 2015, Yusko mentioned that one of the system’s main reasons for creating such an entity was to separate the running of the endowment from university administrators. Since then, the UNC Investment Fund has operated like any other corporation adhering to the principles of what in the business world is known as “modern portfolio theory.”
Yusko and other top UNC officials didn’t respond to my requests for comment.
But the project of corporatization wasn’t an isolated policy. It was pursued to compensate for austerity measures that had been imposed by state and federal governments since the 1980s. This model, which persists, consists of reducing wealth and corporate taxes to incentivize economic activity. For public institutions, however, this has meant substantial budget reductions in state appropriations and an incentive to search for alternative sources of income. To compensate for such cuts, universities have engaged in different business strategies, like the creation of investment funds and the transformation of individual schools and departments into “non-profit” corporations.
Who Runs the Fund?
The UNCIF is controlled by the board of directors of the UNC-Chapel Hill Foundation Investment Fund. As shown in the 2019 annual report, this board is composed almost exclusively of white male executives from various corporate groups, including biopharmaceutical company Corium, the New York-based hedge funds Coatue Management and BlackRock, and the multinational investment banking group Goldman Sachs. While these directors don’t receive compensation for their service on the board, they make important decisions regarding UNC’s asset allocation.
They also constitute a direct link between the university and highly questionable corporations. Hedge fund managers like BlackRock, for example, have been severely criticized for their overwhelming investments in firearms, fossil fuels, and, more recently, a 930-mile train in the Yucatán peninsula, the construction of which threatens to devastate rainforests located in Mayan indigenous territory.
Along with the CHIF’s board of directors, the UNCIF is administered by the UNC Management Company, a non-profit corporation comprising a team of highly trained investment managers. These managers are some of the highest-paid individuals in the UNC System. Based on tax records, in 2017, the president of the company earned more than $1,372,000 in compensation. More than $700,000 of this amount was paid as “bonus & incentive.” These numbers don’t include retirement and nontaxable benefits, which pushed the total compensation to more than $1,750,000.
Compensation for other employees of the UNC Management Company for that same year ranged from roughly $351,000 to almost $760,000. Several of them surpassed the earnings of the UNC-Chapel Hill chancellor at the time, Carol Folt.
The massive salaries of investment managers are consistent with the company’s good financial standing. A graph constructed using the company’s tax records, pictured below, shows sustained growth in net assets since its creation in the early 2000s. The latest filing on the IRS website, which corresponds to the year 2017, reveals that the company held more than $17.8 million in assets at the time, and ended the year with almost $2.4 million in net income. While the UNCIF is subject to internal controls and public reports, little is known about how the UNC Management Company administers its resources and how it has been able to accumulate such assets.
The Inequalities of the Corporate Model
Despite the evident profitability of UNC’s corporate model, the disparities that remain through the system are striking. At UNC-Chapel Hill, which is the university with the highest endowment, the percentage of instructional staff classified as non-tenure-track is approximately 45 percent, with almost half of them working full-time. Meanwhile, the yearly stipend for graduate teaching assistants remains at a meager $16,000. These numbers are even more striking when you consider that the university has more than a thousand employees earning $200,000 or more. Many of these employees occupy administrative positions in non-instructional departments like Athletics or University Communications.
Major inequalities are also visible across campuses. Financial records show a vast difference in income when it comes to investments. Of particular relevance is the racial dimension of these gaps, as the table shows significant disparities between those universities at the top and historically Black colleges and universities (or HBCUs) within the system. If combined, the total made by the five UNC System HBCUs (Elizabeth City State, Fayetteville State, NC A&T, NC Central, and Winston-Salem State) amounts to just over $16 million. That’s $2 million less than UNC-Greensboro alone, and just a small fraction of UNC-Chapel Hill’s investment income, even though the total HCBU population is larger than that of both. Unless there are major redistribution mechanisms, these numbers suggest that corporatization merely reinforces economic and racial disparities within the UNC System.
The Redistribution Question
Since early in the COVID-19 crisis, there have been calls for wealthy universities across the country to use their endowment resources to protect students and workers. These calls have either been dismissed or categorized as non-viable. As a recent Wall Street Journal article argues, the reason colleges won’t use their endowments right now is because funds came from donations designated for specific projects.
But this is only partly true.
While some donations contain legal restrictions, this is mainly the case for massive gifts made by foundations and wealthy individuals. It isn’t the case for the thousands of individual contributions made by alumni, and it’s especially not true for investment gains, the distribution of which has more to do with joint decisions made by a fund’s board of directors and university leaders.
The claim that university endowments are untouchable contradicts the fact that colleges like the University of Delaware and Northwestern University are already drawing on their endowments. Claims about underperformance are also questionable given that several university endowments, especially those tied to private equity and hedge funds, have shown to be doing well—a phenomenon most likely related to the Federal Reserve backing Wall Street during the pandemic.
On September 14, UNC-Chapel Hill announced that the university could face a budget shortfall of $300 million. The strategies planned by the UNC Board of Governors to face this deficit are ones we have known for decades: layoffs, furloughs, and program shutdowns.
While these announcements are usually framed as “unavoidable” costs of the crisis, the data I found shows that there are alternatives to the university’s undermining of its own workforce and human capital; there is nothing preventing UNC from liquidating its fossil fuel assets in order to avoid layoffs, for example.
Whatever our thoughts on meritocracy, there is no reason to believe $700,000 bonuses for investment managers at the expense of housekeepers, adjuncts, and graduate workers are somehow acceptable. I hope that—once presented with the realities of the UNC System’s endowment—university workers, students, alumni, and community members will demand answers about the financial structures supporting these institutions. At the very least, we must push forward a much-needed debate around endowment redistribution and a future for the UNC System that benefits all of us, not just a powerful few.
Julio Gutierrez is an economist and PhD candidate in anthropology at UNC-Chapel Hill. He is part of the campaign Another UNC is Possible, an initiative led by Workers of the UNC System, which advocates for a more equitable and comprehensive approach to UNC’s COVID-19 crisis. Comment on this story at firstname.lastname@example.org.
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