Alice Song / Sun Staff Photographer

Provost Michael I. Kotlikoff and Joanne DeStefano, executive vice president and chief financial officer warned against divestment from Puerto Rico.

February 15, 2018

Expecting an ‘Uphill Fight,’ Student Assembly Urges Cornell to Divest from Puerto Rican Debt

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Despite administrators’ warnings that Cornell was unlikely to withdraw its money from any investments that include Puerto Rican bonds, the Student Assembly called on the University to do just that on Thursday.

S.A. called on Cornell to “conduct a due diligence investigation of its holdings with The Baupost Group and divest from any and all Puerto Rican debt obligations.”

The Baupost Group, a Boston-based hedge fund run by Seth Klarman ’79, has come under fire from some Cornell students after reports revealed that the fund owns about $911 million in Puerto Rican debt.

In a 22 to 0 vote, with two members abstaining, S.A. passed Resolution 28, dispelling warnings from Provost Michael I. Kotlikoff and Joanne DeStefano, executive vice president and chief financial officer, who said the circumstances of the Puerto Rican debt crisis did not warrant divestment.

The recommendation, its backers acknowledged, faces a difficult future. President Martha E. Pollack has veto power over the recommendation, and if she approved, it would then have to pass through two board of trustees committees and then be passed by the full board. Any one of those steps currently seems unlikely, students acknowledged.

“I recognize that it’s an uphill fight,” said Chris Arce ’19, co-president of the Puerto Rican Student Association and a co-sponsor of the resolution. “I recognize that there’s a lot to do, but I’m hopeful.”

DeStefano said the University had long ago developed standards for withdrawing monetary investments, and that the drastic move was reserved for only the most severe instances. Cornell also requires evidence that its divestment would have a substantial influence.

“One of our temptations is to use the endowment for social and political causes, and while they may be worthy, it’s very difficult to justify the impact on the University,” DeStefano said.

Cornell has not divested under its current policy since August of 2006, DeStefano said, when David Skorton, the former president, barred Cornell from investing in oil companies that were operating in Sudan during the War in Darfur.

The resolution also calls on Cornell to “list investment partnerships in their yearly tax filings in terms of both the initial investment amount, the fund’s name, and affiliation.”

DeStefano, responding to a question from S.A., said she would look into how other peer institutions, including Princeton and Yale, identify specific investments.

Kotlikoff read from a list of nine items regarding The Baupost Group and Puerto Rico on Thursday night.

The first item on that list noted that “Seth Klarman is an alum. He heads Baupost Investing. He is also a generous and selfless donor to Cornell, for which we are extremely grateful.”

Kotlikoff noted that The Baupost Group is one of several firms that guides the University’s investments, and he said it does so “very well at a competitive fee.” He and DeStefano both said they were concerned that restricting investments would keep the best financial managers from handling the University’s funds.

“If we start restricting, we lose access to some of the best managers,” DeStefano said.

Arce said he is “not naive enough to think that [the resolution] is going to solve the problems of Puerto Rico” or “solve the debt crisis.”

He and assembly members said they believe the measure sends a strong message to Cornell that it should support Puerto Rican citizens financially, in addition to the efforts Cornell has made to support students following Hurricane Maria.

Kotlikoff, meanwhile, argued that The Baupost Group’s purchase of bonds sold by Puerto Rico actually aided the U.S. territory by sending money to the island.