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Stanford Getting Rid of $18 Billion Endowment of Coal Stock
mdsolar sends this report from the NY Times:
"Stanford University announced Tuesday that it would divest its $18.7 billion endowment of stock in coal-mining companies, becoming the first major university to lend support to a nationwide campaign to purge endowments and pension funds of fossil fuel investments. The university said it acted in accordance with internal guidelines that allow its trustees to consider whether 'corporate policies or practices create substantial social injury' when choosing investments. Coal's status as a major source of carbon pollution linked to climate change persuaded the trustees to remove companies 'whose principal business is coal' from their investment portfolio, the university said."
They are not acting in the best interest of those the endowments are there to serve. They are using the financial clout of the endowments to make a political statement, often to the detriment of the endowment's beneficiaries.
Stupid.
Wow, your time as a University trustee seems to have left you really bitter. Oh wait, you were *never* entrusted with maintaining a 120-year-old institution and its 11-figure endowment? Huh.
Stanford is a (very rich) non-profit educational institution, so while they have plenty of sharp investment managers it is not their sole obligation to maximize returns no matter what it takes. Their reputation is worth quite a bit to them. They bring in just about as much money in alumni donations as they do from the endowment.
Stanford University has an $18 billion endowment, but only a fraction of that is invested in coal mining companies. They're not just dumping $18 billion worth of stock.
they are reducing the value of future offerings by becoming one less bidder for those shares.
Not by much, because the summary is WRONG. $18B is the value of their entire endowment. The fraction of that specifically invested in coal is a tiny fraction of that. If they are smart, they already divested, before making the announcement.
Stanford tuition, room, and board is actually free for students with families making less than $100k a year. http://paloalto.patch.com/grou...
Read.
I live ze unknown. I love ze unknown. I am ze unknown.
Endowments return significant operating funds in up years, and sales from the endowment assets smooth out what would otherwise be significant operating losses in the down years; they decouple university operating finances from the business cycle and local politics. They _stabilize_ finances. They can also used as collateral allow for much larger debt funded initiatives to be floated. I dearly wish my university employer had a large endowment....
Put another way: you don't eat your seed corn. The endowment is the seed corn. Selling off an endowment for short term, short sighted "it seems wrong to have so much money!" would be criminal
To the contrary, Stanford is simply astute enough to be the first to sell, while the price of companies involved in coal are still high. Its now just a trickle, but soon it will be a flood. The smart ones always get out first. The rest won't be able to afford not to and will begin to sell as their portfolios in these companies as they decrease in value. With new solar technologies capable of energy capture at up to 70% likely to start hitting the market within 5 years and wind energy becoming cheaper and cheaper and the electric car industry just around the corner, fossil fuel dinosaurs will be returning once again to the depths. Only those locked in will ride coal and ultimately fossil fuels all the way to the bottom.
The energy barons of the future will be those that invested in renewables first. Its inevitable and of course, the reason that China is now spending 3 times more on solar ($147 billion in 2011) than the US ($52 billion in 2011). No one can say the Chinese don't know how to grow their economy, which will be the world's largest this year, if it isn't already.
By selling Stanford will put downward pressure on the stock of coal companies, which means they have less capital against which to borrow and pay executives their stock options. It will take more and more stock options to keep the insiders happy, which will put further pressure on the stocks as other stockholders recognized they are soon to be the last guy out and the one holding the bag. If owned stock in a coal company, I would be selling as quickly as possible and moving into solar, wind and other renewables, since these will be the growth industries of the future, while fossil fuels will be creating more and more pollution and health problems for more and more people, leading to more litigation, more calls for regulation and less profits, especially as the world grows hotter and hotter and the 99% figure out they are being stuck with the tab. Its bad enough that oil companies have been raising prices recently to fund lobbying and campaigning for their favorite republican candidates. As fracking leads to more earthquakes and health and water issues, expect to see the profits in the fossil fuels sectors decline as those in the alternative energy industries rise as new technologies power increase efficiencies and growing public acceptance. It will only take one El Nino to drive this point home to all but those most deeply in denial.
Stanford is simply selling coal stocks while they are high and moving into alternative energies, which are on their way up. From an investment point of view this is a no brainer.
It has a lot to do with being founded by a railroad baron who didn't want to be the richest guy in the graveyard.
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Does this mean Standford will divest itself from the use of electricity too? Or is this just a hypocritical publicity stunt?
Stanford receives electricity from two sources -- Cardinal Cogen, an onsite natural gas cogeneration unit, and PG&E. Neither of which use coal.
Not really, look at employment in the coal industry...it has shrunk quite a bit and certainly a lot recently as gas is eating their lunch.
Hah. And here I've been writing paragraphs on other sites trying to explain this to people. Well put.
turkeyfish, stock sales don't put downard pressure on the value of a company. The put a temporary downward pressure on the trade value available on an exchange. But all that effects is liquidity. As long as even two sufficiently-capitalized bidders understand the value of the underlying company, coal stocks would maintain their price with only those two bidders. Why would one of them turn down the stock at a bargain price?
The value of these companies, and thus the value of their stock, is driven by the value of coal. That value is realized on the energy market, not the stock market. The stock market is only where that value is *traded*. Theoretically, sure, massive investor actions could upset underlying dynamics. But it doesn't take a Stanford grad to know that coal energy will never be stopped, or even much affected, by voluntary divestment activity. There are simply too many remaining sources of capital, to the extent that these companies even need new capital at this point. And there will always be enough people happy to soak up the profits of the companies, as long as there are buyers of coal energy.
Far smarter for Stanfard to point this out, then dedicate all coal-energy profits to avoid purchasing the *energy* from coal, and also toward reducing the cost of alternatives, not just for Stanford, but for everyone. They actually chose PR *over* environmental responsibility, not to mention over simple economic intelligence.
That $18.7 billion is the entire endowment, not just the portion invested in coal.
So, just because they might have a billion in revenue, they can't exist for education purposes? If they split into two halves, with $500 million in revenue each, would each suddenly become a legitimate educational institution?