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OU's investment policy allows donor money to end up in the hands of tobacco and oil companies.

Endowment dollars traced to tobacco, oil and private prison companies

In 2015, Ohio University banned the use of tobacco products on its Athens campus. Despite that, money invested in one of the world’s largest tobacco companies can be traced to the university’s endowment fund.

A close look at the Ohio University Foundation’s long-term investment portfolio reveals many similar investments — ones that members of the university community have pushed back against in the past. Most notably, because of the way endowment money is managed, OU has investments in both private prison corporations and oil companies.

And right now, it would be difficult — but not impossible — for the university to prevent those kinds of investments.

“Within our current investment practices, we’re not in a position to effectively filter that out,” Candice Casto, chief finance and investment officer for foundation operations, said, specifically referring to tobacco companies.

The university’s endowment is managed in part by a third-party investment company — Hirtle, Callaghan & Co. — which puts big chunks of OU’s endowment money into pools of investment dollars called mutual funds. Other money managers, who choose what stocks or bonds to buy, run those funds.

That’s how OU’s money ends up on the balance sheets of tobacco, oil and private prison companies.

According to an investment disclosure from the end of 2016, OU had a little more than $20 million invested in HC Capital Trust’s “Fixed Income Opportunity Portfolio.” Earlier that year, that fund reported owning a little more than $1 million in bonds from Corrections Corporation of America — one of the nation’s largest private prison operators.

Corrections Corporation of America, now called CoreCivic, purchased Lake Erie Correctional Institution from the state of Ohio in 2011. In the years following the transaction, despite glowing reviews of the facility from the state, the ACLU of Ohio shot an award-winning documentary about poor conditions at Lake Erie Correctional.

“The main problem that I see with private prisons is that it’s not in the best interest of the community,” said Jocelyn Rosnick, assistant policy director at ACLU of Ohio. “They don’t want empty beds because every empty bed is literally dollars out the window.”

The university is also invested in funds that reported owning shares of stock in tobacco giant Philip Morris International, Inc., and bonds from Geo Group, Inc., another private prison operator.

One specific fund, "The Institutional Small Capitalization–Mid Capitalization Equity Portfolio,” owned more than $2.2 million worth of shares in gas and oil companies. Its biggest energy holdings are in Energen Corp. and Carrizo Oil & Gas, Inc.

How it Happens

The Ohio University Foundation’s investment policy does not specify in what kinds of companies OU should or should not invest. Instead, it focuses on broader, numbers-based goals.

Specifically, the endowment fund’s long-term goal is to “maximize the real return” on its money, while trying to reduce risk by putting the money in a wide range of investments. One of the ways to accomplish that is through the use of mutual funds.

But using mutual funds often means investors can’t pick and choose companies or industries they want to avoid. Many funds own securities from hundreds of companies.

The result is OU’s investment strategy is zoomed-out — instead of what kinds of companies it should avoid, it pays mind to the categories of investments it wants, like stocks or bonds, and how much.

“We don’t spend a whole lot of time looking at the individual securities in those portfolios,” Casto said.

A Possible Solution

Some investment management companies, including Hirtle Callaghan, offer funds that apply ethical considerations, like how companies affect society or how a company treats its employees. That method is called ESG or SRI investing.

Hirtle Callaghan met with the foundation’s investment subcommittee last year to talk about applying ESG principles to OU’s endowment funds. That talk hasn’t led to much in the way of concrete movement toward ESG, though.

That’s in part because the university is waiting to evaluate the results of student-managed ESG portfolios, Casto said.

Two student investment groups — the Student Equity Management Group and the Fixed Income Management Group — manage ESG portfolios with the help of a student group called the Sustainable Investing Advisory Committee.

SIAC’s president, Matthew Smalls, is optimistic about the results he has seen and thinks ESG principles could be applied to OU’s endowment.

“I feel like it would be practical. At least in (the Fixed Income Management Group), they’re pretty optimistic about the ESG investing,” Smalls, a junior studying finance and management information systems, said. “I do think it’s feasible. It would just be more work.”

ESG isn’t the only fix, either. One thing SIAC has been investigating is persuading mutual fund managers to become more sustainability-minded through proxy voting, said Elaine Goetz, one of SIAC’s faculty advisers. Proxy voting allows shareholders to influence how a fund operates.

“I would prefer, just personally, that (OU) wouldn’t invest in anything that is a ‘sin tax,’ ” Goetz said.

She said it should be possible for OU to maximize its returns while keeping sustainability in mind.

“I don’t think those are mutually exclusive,” she said.


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