WILLIAM RAU
As climate wildfires rage and the world burns, we ask: who is rising to the challenges of the multiplying climate catastrophes?
Illinois State University (ISU) has not. Instead, ISU has retreated from past climate commitments. The retreat begins in earnest after 2017 when I requested ISU’s President Larry Dietz to consider several climate initiatives.
My requests:
- Buying wind power for ISU’s electricity needs, a change that might save money while reducing yearly CO2 emissions from 48,000 tons for fossil fuel electricity to 1,000 tons for wind power. That’s a 97% reduction with the passage of one year.
- As a signatory to the 2010 American College & University Presidents Climate Commitment, adopt a variant of the University of Illinois’ climate action plan as a means to exceed our signatory obligations. Seven years had passed, and ISU had failed to meet a single major commitment.
- Strive to improve ISU’s campus sustainability rating, silver in 2016, to gold in 2019.
- A capital campaign to “Buy Reggie Redbird a Green Vest.” A Green Vest Fund would help ISU’s mascot, Reggie, decarbonize the campus and green the curriculum.
President Dietz said that his staff would reply to my requests.
No replies. The Dietz Administration never examined low-cost, carbon-slashing wind power and quietly withdrew from the University Presidents Climate Commitments. And campus sustainability efforts were deprived of support resulting in ISU’s demotion from a 2016 silver to a 2019 bronze rating.
Enter ISU students who organized a fall 2019 climate strike in Uptown Normal attended by 300. Next, students partnered with several community groups to push for ordinances to adapt Bloomington-Normal to heat waves. They came close to success; Normal was onboard, but Bloomington nixed a deal.
Meanwhile, ISU’s Board of Trustees held its January 2020 meeting at Petco Petroleum, the company sued in 2013 by Illinois’ Attorney General as “the worst polluter in … Illinois oil production.” Petco is owned by Jay Bergman, ISU’s longest-serving trustee, and a behind-the-scenes donor – except for politicians where campaign disclosure laws show him giving $500,000 to a Trump super PAC in 2016.
In 2020, students created Fossil Free ISU to pursue the removal of fossil fuel investments in ISU’s endowment. Yet, we were not prepared for what we uncovered: a pattern of financial mismanagement of ISU’s endowment by its investment manager, Commonfund:
- Commonfund is a blended private equity / hedge fund operation that collects hefty management and performance fees.
- Camouflaged fund labels misled us, but we soon discovered that 13 of 17 funds controlling 89% of the assets in ISU’s portfolio were created by Commonfund and are organized into a hedge fund of funds in which Commonfund executives hold ownership stakes.
- Commonfund’s 13 funds generated a Fiscal 2019 return of only 4.7% compared to 10.4% for the S&P 500, and 19.7% for four independent funds.
- Risky investment choices characterize Commonfund’s modus operandi. In FY 2019, the portfolio’s commodity trading hedge fund lost $2 million, a junk bond fund with $1 million collapsed, and several vulture capital funds generated red ink. Eight of the 13 funds lost money in a bull market.
- Commonfund fossil fuel investments, already money losers, may incur even larger future losses due to significant exposure to oil and gas frackers and other high-production-cost oil and gas operators. Fracking companies are now going bankrupt in droves. As a result, ISU’s fossil fuel holdings may rack up millions in unrecoverable loses.
Stunned by our findings and worried that their release could impair the Foundation’s ability to raise money, we wrote a report for and scheduled a private meeting with President Dietz hoping that he would deal expeditiously and discreetly with the Commonfund problem. Our requests were simple: (1) cross-examine our findings with the assistance of an expert on portfolio management and with a fiduciary lawyer, i.e., a specialist in laws governing endowment investment; (2) advocate for the students’ fossil fuel concerns with the ISU Foundation Board. The Board is responsible for supervising and evaluating Commonfund as well as determining the prudence of investments. We did have one demand: the conflict of interest recusal of Kenneth Glover, Foundation Vice Chair and former President of ExxonMobil, from the evaluation of Commonfund and the prudence of ISU’s fossil fuel investments. Fiduciary law mandates the removal of imprudent investments from endowments.
President Dietz refused these requests and asked us to take our concerns to the Foundation Board. Since we did not have the Board members’ email addresses, we asked Pat Vickerman, administrative liaison to the Foundation, to forward our report to them. Instead, over our strong objections, he sent our report to Commonfund for their review.
Turning investigation of a hen house raid over to a fox mocks barnyard sensibilities at the same time that it preempts voting Board members of their legal obligation to directly supervise and evaluate their investment manager. We also wanted access to Board members because they have skin in the game. If this kerfuffle were to turn into a legal contest and if a court were to rule against the Foundation, Board members would stand charged as negligent supervisors and would have to make whole ISU’s endowment for the millions of dollars of losses that occurred on their watch.
Students and faculty, as Foundation beneficiaries, have the right of access to Board members. Thus, after three requests and three refusals, we cobbled together some email addresses and forwarded our report to those we could reach. Mr. Vickerman’s reaction is instructive. He remains committed to Commonfund evaluating itself, after which Board members will “have an opportunity to participate in the review process.”
We hope so, but another major concern lies elsewhere. Will Reggie get his green vest? Presently, he is straight-laced into an oil-stained, coal-dusted corset.
We think Reggie would be a better bird if he ditches the corset for a green vest.
William Rau is Illinois State University professor emeritus of sociology.