Overview
This piece concludes the collection of texts with which we have launched our Recognitions project. The collection reflects some of our thinking financialized higher education. In it, we have foregrounded endowments that invest via the so-called “Yale Model.” The texts point to a range of problems that attend the adoption of the model, from the redefinition of endowment management from prudence to maximizing returns on investment and accompanying problems of governance to the expense, risk, opacity and disastrous socio-economic effects of the model’s signature “alternative investments.” We link the Yale Model to financialized thinking about organization (about what and who matters and what and who do not) as well as to centralization of power in the hands of trustees and upper administrators at the expense of all other stakeholders, who are refigured, in the process, as subject and as subjects of “austerity” measures when “necessity” requires. We have also begun an inquiry into the ideological kernel that enables financialized thinking and holds it together, legitimating its inclusions and exclusions.
This text widens out the angle, temporally and sociologically. The first part takes as its point of departure a 2010 report that detailed the consequences of the financial crisis for six New England colleges and universities the endowments of which were invested on the Yale Model. We present some of the report’s main observations, with a particular emphasis on the striking continuities that link 2010 with 2022. The second part returns to the present in order to marvel at the extent to which the distortions in institutional and resource allocations noted in 2010 persist, in order to pose the question: What are we up against and what can we do about it?
The View from 2010: The Tellus Institute Report
In the aftermath of the 2007-8 financial crisis, The Tellus Institute’s Center for Social Philanthropy reported on what it meant for six New England colleges and universities: Harvard, MIT, Boston University, Boston College, Brandeis, and Dartmouth. All had endowments invested on the Yale Model.[1] The resulting document, Educational Endowments and the Financial Crisis: Social Costs and Systemic Risks in the Shadow Banking System is an impressive map of what it was already possible to know in 2010 about the Yale Model and its effects, both financial and institutional. The document is very much worth a read: it is available here. Twelve years after its publication, it circulates as electronic flotsam, message in a bottle.
The recognitions of just how much links then and now are unsettling.
In the report, lead author Joshua Humphries, and his team begin their discussion of the consequences for endowments invested using the Yale Model of the 2008 financial crisis by surveying the damage: Harvard lost 30% of its endowment’s nominal value; Yale’s 24%, and so on. The authors correlate these losses to each institution’s exposure to “alternative investments” (hedge funds, private equity), using information provided in financial statements/annual reports on asset allocation by fair-value hierarchy as a proxy to do so. Yale-Model targets include exposures of 60% to alternatives, which are typically designated as level 3 within the fair value hierarchy used in accounting (i.e., illiquid securities with no observable market inputs, priced using models). All the schools examined in the report had similar exposures, so their losses were comparable. But the impact of the losses varied by school, and the authors set out to explain that as well.[2] These parts of the analysis are exemplary.
Risk, Crisis, Meteors
The authors see two interconnected conditions of possibility for such exposures: oversight problems, and an underestimation of the risk exposures entailed by the Yale Model. Our analysis of David Swensen’s Pioneering Portfolio Management may provide part of an explanation.
Swensen was instrumental in redefining the role of endowment management from conservation of assets and prudence to active management looking to maximize returns on investments. This transition, Swensen argued repeatedly, required managers cultivate an “appetite for risk.” As someone else put it: “Making money presupposes risk. Sometimes there are losses. That’s just how it is.” Swensen says as much as well: when you expand the asset classes in which you are willing to invest to include alternatives like private equity, you increase your risk exposure. In exchange for that exposure, you access superior returns.
The argument can be restated as: private equity and hedge funds may be opaque, complex, illiquid and difficult-to-value with unknowable risk profiles--but that risk can nonetheless be managed by portfolio diversification. It can be managed by the numbers.
But Swensen’s application of modern portfolio theory was not entirely quantitative. For example, asset-class definitions are qualitative undertakings that require considerable due diligence. The sections on due diligence in PPM are sprinkled with warnings to the reader: “Don’t try this at home! If your institution cannot afford the infrastructure that enabled the requisite due diligence,” Swensen says, “stay passive.”
In their report, Humphries et. al. pointed to a diversity in practice in how endowments addressed due diligence. The biggest endowments were in-house or relied on some mix of in-house and external consultants/advisors. The rest relied entirely on consultants. When the crisis came, none were spared.
There is another, fundamental aspect of risk management that is not quantitative: the personal relationships that link endowment managers to fund partners, outsourced investment managers and consultants. Relationships and trust are integral to private finance, and nowhere more so than with hedge funds and private equity. As we argued in “Yale Model,” Yale’s was a most advantageous situation in this regard, both institutionally and geographically.
As we will see below, the contexts private equity depends on have tightened: there is now intense competition for access to top 20% of funds, which are the only ones that have performed since 2006. The importance Yale’s advantages of position have only increased.
Swensen discusses all three aspects of risk management, but emphases means-variance, Yale’s application of modern portfolio theory (MPT), and its heavily quantitative substructure. In our look at PPM, we followed Swensen in describing how, in normal times, that quantitative substructure allowed a correctly diversified portfolio to function as a contrary-motion machine. Losses in one asset type would be offset by gains in another, calibrated around targeted returns and balanced against risk. Normal accounting time, in other words, where the present resembles the past with details rearranged and the future is expected to be same, more or less. Accounting time is monotonous but it is not static. Price and other conditions can change, and when changes outstrip the parameters established via calibration, rebalancing may be in order.
Rebalancing is just doing what the numbers tell you. The numbers allow managers to work at a remove from the present, with its price fluctuations and possible turbulences. The numbers enable them to cultivate “the long-term perspective” that, Swensen argued, was appropriate to an endowment, given its “time-horizon of centuries.”
A correctly balanced portfolio can incur losses: they are part of the ordinary course of things. Typically, they’d be offset by gains in another asset class. Either way, they do not matter. Unexpectedly large losses that exceed the control of the numbers are always possible as well. In PPM, Swensen associates them with failures of due diligence. The current webpage for Yale’s endowment echoes the sentiment, characterizing asset-class definition as a weak point because they are not quantitative, and are, therefore, “necessarily subjective.”
Crisis does not enter the picture that PPM presents. This is not to say that David Swensen, as a person---as over against his book’s narrator---was not aware of crises. In interviews, he often equated crises with failures in macroprudential regulation. SEC’s failure to more tightly regulate hedge funds after the collapse of Long-Term Capital Management was an example. Swensen saw it as a macroprudential failure, one that allowed a potentially dangerous imbalance to continue, an excessive concentration of capital in a “market sector.” But Swensen as narrator of PPM presents his readers an image of the model as a well-managed endowment with a correctly balanced portfolio, all its contrary motions unfolding in an expanse of normal accounting time.
Contemporary academic finance types assume applied MPT has been generalized. Based on that assumption, cultural workers in the field have redefined normal accounting times in terms of the contrary motion among the groups of asset classes that comprise a hypothetical portfolio. By contrast, the current definition of crisis is when all asset classes move in the same direction.
Crisis disables portfolio diversification and scatters its approach to risk management. Crisis puts an end to normal times. But this is an abstract, almost metaphysical view of crisis. Crisis comes from Beyond: no-one who occupies the limitlessness of normal accounting time could possibly see crisis coming. Crisis comes from The Outside, like a meteor or The Incarnation.[3] In theory, crisis separates a Before from an After, in which everything that obtained Before is somehow different. In theory, crisis encapsulates a possibility made explicit by the Christian marking of time, the distinction of BC from AD. But the meaning of the Incarnation was not manifest in the timeframe in which it happened: later, in Christ’s lifetime and just after, such meaning was available only to a vanishingly small number of people. Its purchase is the result of subsequent events, the social institution of an understanding of the past that was basically different from that which obtained when the past was the present. That process of institution relied on a singular series of events: the writings of Church fathers via the conversion of Constantine; the Council of Nice and the church’s fusion with the Roman State, and so on.
Fundamental changes in how things are envisioned or imagined can---and do---occur via more diffuse means as well: think the impact of the environmental movement broadly construed in redefining the separation of inside from outside for capitalist firms away from that which used to enable a paint factory, say, to “get rid” of process by-product waste by dumping it in nearby a river.
But the 2008 financial crisis did not issue forth in any comparable transformation in how neoliberal capitalism was understood or in how the role the finance industry was seen, either in itself or in its relations with society. Absent that, endowment managers availed themselves of the other way of narrating something like crisis. It came from Outside: no-one could have seen it coming; there was no particular meaning immanent to it, nothing to be learned from it. Reality is as it had been. Risk is managed, until it isn’t. And so, after a period of (ritualized) stock-taking, endowment managers and all those charged with oversight reverted to form. The crisis was an aberration, a Black Swan, something exceptionally exceptional, unlikely to repeat. Nothing about the financial crisis obviated the Yale Model. Nothing required endowment managers change direction.
This notion of crisis as metaphysical, as something that comes from The Outside like a meteor or the Incarnation, is nonsense once separated from the Yale Model’s “long-term perspective.” People who were looking at material conditions prior to 2008, who looked into the underlying with mortgage-backed securities knew something bad was coming (think The Big Short). People at AIG knew they were overselling credit-default swaps (but fees, darling, fees). After the fact, other people saw there was much to be learned from the crisis. From a legislative perspective, such learning informed Dodd-Frank with its requirement that private equity register with SEC, which began the long, long process of requiring funds to disclose their fee arrangements, potential conflicts of interest, and so on.
The 2010 report does not fall into the trap of making risk over into an abstraction. It focuses on specific sources of risk that were made evident by the crisis. Some examples include:
Private equity’s use of leverage (debt) to fund buyouts---the LBO sector’s defining characteristic---was more than a mere financial innovation. It amplified general partner gains and limited-partner losses (23-5).
All six schools found themselves constrained in their abilities to respond to the crisis by both the nature and expense of their holdings in alternatives. For example, because they followed Swensen The Modelmaker in his confident embrace of illiquidity, endowments found themselves strapped for cash and struggled to make margin calls. The acuteness of these problems correlated with exposure to private equity: funds locked up investor capital for as much as 10-12 years and offered no redemption options, which meant that endowments could not close out holdings in order to raise capital.
The embrace of illiquidity cut in another way as well. When the crisis hit, Harvard was “over-invested,” which meant had little cash on hand. The endowment tried to free up cash by selling shares in its private-equity holdings, but even at fire-sale prices there was no secondary market, no buyers---which underscored a dimension of uncertainty that accompanies private-equity valuations. (25-31).[4]
The report teems with examples of such specific risks that were downplayed or ignored.
Relative to such examples, the view from PPM of risk managed by the numbers in the context of a correctly diversified portfolio unfolding its characteristics in an unlimited expanse of normal accounting time seems ideological in the Marxist sense of a false consciousness that obscures contradictory or antagonistic granularities in order to further a specific class interest. It seems like kitsch.
But maybe that’s not entirely Swensen’s fault. “The long-term perspective” provides no way for those who internalize it to think of the fragility of the arrangements in which that time functions. Even characters about to die in Borges stories are only variably aware of what’s about to happen to them.[5]
Institutional Effects of the Yale Model
The Yale Model is an investment strategy the implementation of which requires considerable institutional change, a reallocation of resources and transformation of priorities. These changes are quite concrete and have equally concrete effects that were already recognizably problematic in 2010:
In 2010, the Tellus Report showed that, where institutions invest their endowments via the Yale Model, these institutions converge in how they are run. They become more alike. That is not to say they become identical: particular institutions retained some ways of doing things that were rooted in their specific histories. For example, endowment contributions to operating budgets varied by school, and schools’ direct exposures to endowment losses varied along with those contributions. Rather, schools became similar in how they were managed and in the thinking that informed that management. All the institutions studied responded to the crisis in similar ways, driven by the same highly financialized style of thinking, one already visibly at odds with the educational and cultural missions of those schools.
Adopting the Yale Model required colleges and universities undertake considerable resource reallocations. It took people with background in finance to run an endowment on modern portfolio theory, to assess and monitor the asset types central to the model--and that put endowments in competition for people with the finance industries; their institutions had to offer comparable salaries and benefit packages to recruit successfully from that pool. In 2010, Humphries et al regarded “the Cult of the CIO” as the most obvious symbol of the priorities required of higher ed by the Yale Model (15-6, 45-55). In 2010, David Swensen was famously Yale’s most highly-paid individual and Dartmouth’s CIO made $850K/year (47). But the CIO Cult was most extreme at Harvard, where the Corporation adopted performance-based remuneration that paid the endowment’s top managers tens of millions, pay so high that Swensen himself called it “unsustainable” (52). Even the technological infrastructure required for the Model was expensive (in 2022 a single Bloomberg terminal subscription reached $30,000/year[6]).
In 2010 one could know that only the biggest endowments could afford to keep in-house the gathering of information required for asset-class definitions, investment advice, and monitoring, and that the rest outsourced these tasks to consultants, an army of which formed to service these institutions--and to collect handsome fees for doing so. Humphries et al use Harvard to show that, in many instances, these consultants were more connected than competent (24-5). Significant for our purposes is that the vast majority of those consultants were alumni either of the College or of the endowment. The importance of alumni affiliation in finance is hard to overstate.[7]
In 2010, analysts who looked could already discern that oversight and governance problems that accompanied adoption of the Yale Model. At the time, the report notes, trustees were recruited from finance with increasing frequency, which fostered a clubby and self-enclosing opacity around endowment oversight. Changes in trustee recruitment were also the basis for ideological consensus about the necessity and utility of the narrow, finance version of what Elizabeth Popp Berman has more recently (2022) called “the economic style of reasoning.” In 2010, it was already evident that these changes were feeding into an emergent secretive and autocratic approach to university administration. (p. 42, Table 5) Humphries and his team also called attention to pervasive conflicts of interest as well: they used the example of Dartmouth to note a larger pattern of university trustees recruited from finance entities in which the endowment was invested (40-5).
In 2010 it was already clear that the reallocation of resources and changes in personnel recruitment patterns associated the Yale Model had redistributed power within the affected schools. This redistribution was reflected in changes to the definitions of fixed and variable cost. Trustees, CIOs, and upper administrators were the observers, not the observed: they accepted no responsibility for and endured no consequences because of losses incurred during the financial crisis.
Instead, consequences flowed downward and/or outward. When necessity required austerity, the costs that were cut happened at the expense of faculty (program cuts), staff (outsourcing), and surrounding communities (via cuts to construction projects etc.) (60-2). These actions reflect transactional thinking rendered universal. In 2009, trustees at Brandeis revealed a plan to mitigate some of the losses the endowment incurred by selling off the school’s art museum and liquidate its collection despite a depressed art market. A trustee spokesperson called it an “intelligent way to redeploy university assets.” It was opposed by everyone else and was eventually stopped by in court by a class-action suit that included a museum trustee from the family for whom the museum was named (33-4). [8]
From 2010 to 2022
In 2010, Humphries et al expressed surprise that the negative institutional consequences of adopting the Yale Model, combined with the damage inflicted by the 2008 crisis, did not result in at least some of the schools that they looked at going off the model.
Twelve years later, most US endowments with holdings valued $1 billion+ are still managed using the model.
When a school adopts the model in 2022 it is still accompanied by the same problems: upward misallocations of resources; concentration of power in trustees and upper administrators; a lack of accountability at the top; lack of transparency about the endowment, its holdings and costs; an autocratic style of management, the finance-influenced economic style that informs it: the pushing down or out, in organizational terms, of “austerity,” its costs and consequences. Our group of texts that includes the letter from Oberlin’s Just Transition Fund’s to SEC and PRRC partner Kelly Grotke’s article from the September 2022 issue of Academe make that clear.
Ongoing Problems of Governance
Her latest article is a powerfully written description both of how the effects continue to ramify at Oberlin. When costs need be cut, those cuts are always imposed downward. In 2010 “austerity” was visited upon dining service and custodial workers in the shape of outsourcing their jobs during a pandemic. More recently, “austerity” has been visited upon students, whose health-care services were outsourced to Bon Secours Mercy, a conservative Catholic provider that follows the sexually and reproductively restrictive Ethical and Religious Directives of the U.S. Conference of Catholic Bishops--and this in post-Dobbs Ohio. At roughly the same time, Oberlin’s Board of Trustees followed advice on “shared governance” from an unnamed consultancy and moved to centralize power by eliminating the Finney Compact and Oberlin’s 180 year tradition of faculty governance along with it.
Similar things have been happening across the country. A recent article revealed how the administration at Columbia University tried to game the numbers it provided US News and World Report for their annual college and university “prestige metrics.” It included a remark, made seemingly in passing, that Columbia’s ratio of administrators to faculty members is currently 3:1 (administrative bloat is a frequently repeated criticism of financialized higher ed that we will look into another time). Whistleblower and mathematics professor Michael Thaddeus describes Columbia’s administration as “secretive and autocratic” and as given to corporate damage-control as its default approach to communication.
These problems are not limited to the US either. A Twitter thread, available here, details similar problems at Concordia in Montreal. Administrators are accused of intimating that they feel they have, and might exercise, the prerogative of monitoring the private electronic communications of faculty members.
Ongoing Oversight Problems
In 2022, as in 2010, such effects seem invisible to the activist trustees and upper administrators who implemented their causes and who keep them in place. Invisibility may follow from a sense that such things are necessary and justified. This sense of necessity and justification often presupposes an exclusion from the mind as irrelevant any non-financial consequences of finance-driven decisions, in the way such consequences are excluded by the core ideology of contemporary finance capitalism, of which the private-equity business model is a perfect expression. These exclusions lean on psycho-social processes like those Charlie Ellis described as “the loser’s game,” an inability to acknowledge changes in situation, breakdowns or mistakes shaped by a strong preference for the familiar and that it continue. These factors seem to make oversight a problematic undertaking under the best of circumstances. The Yale Model introduces other problems: the technical rhetoric of finance; the opacity of private-finance instruments and absence of basic information, even down to reliable interim earnings. Humphries et al add information about significant conflicts of interest to the mix as well, including trustees affiliated with private-finance funds in which the endowment is invested, which, in turn, raises the possibility of financial gain being a motivation to not see problems as well. The uncovering of such comprises projects for the future. But we can say that the oversight problems revealed by the financial crisis persist, and that evidence for them lay in the fact that endowments keep investing on the Yale Model despite the deterioration of private equity.
In 2022, private equity remains awash with pension fund and endowment money.
The assets remain exceedingly expensive.
There is today more information available to the public about PE fees and other expenses than was available in 2010. In 2011, SEC adopted provisions from Dodd-Frank that effectively excluded private-equity from the 3c1 exemption to the Investment Advisor Act of 1940. The 3c1 Exemption was initially a carve-out won by wealthy individual investors to protect their financial advisors. The Commission granted hedge funds access to the exemption and, sometime afterward, private equity was grandfathered in. The 3c1 exemption is the main explanation for the extraordinary opacity of these instruments; it also explains the funds small size in terms of personnel and the fact they cannot advertise. Funds attract investors via word-of-mouth, which makes advantageous social network position basically important.
Dodd-Frank provisions required private funds to register with SEC from 2014. Registration set into motion the examination process, or investigations of industry practices by the Commission. One set of results from that process was the publication of two SEC “risk alerts,” one in June, 2020 and the other in January 2021. The alerts reveals that private equity funds are terribly extractive, beginning with the already expensive 2 and 20 basic fee structure and adding to it: tangles of management fees; payments to shell companies created and owned by general partners that perform no service apart from accepting and kicking back those fees; long lists of expenses. The June SEC’s risk alert is particularly worth a read. It dissipates to smoke Swensen’s treatment of private equity as an asset class--but without entirely obviating it. Rather, it highlights the particular and narrow view of private equity relevant for an institutional investment manager.
The business model is extractive to its core.
Regardless of the status of the myth of private equity, the business model has been and remains immensely destructive.
The model is extractive on a level that contributes significantly to our Gilded Age distribution of wealth.
The industry’s wealth means it has enormous political power. For many years, the sector’s invisibility was proof of that power.
The question of invisibility can be turned in other directions. One of the conditions of possibility for PE’s model has been the ability of actors in the sector to erase the non-financial consequences of decisions taken on finance grounds. We began to unpack the underpinnings for this earlier, and will no doubt return to it in the future—but want to point out here that the success of private-equity has visited immense destruction on workers and communities across the US, beginning from its earliest incarnation as the corporate raiders of the deindustrializing 1970s and continuing through today. This destruction was justified on ideological grounds that have grown threadbare, as we will see below. Today, belief in the idea that PE benefits people other than funds’ general partners is mostly held by industry publicists and the finance writers who help them.
But important work has already been done exposing the damage and explaining how it has been possible, starting with Eileen Appelbaum and Rosemary Batt’s pioneering 2014 Private Equity at Work , and continuing via, for example, the excellent PE Stakeholders collective. We need to build on and amplify that. We also need to connect investors to damages caused by funds in which they are invested. We need to make them complicit. Because, of course, they are.
Returns have not beat the market since 2006.[9]
Recall that the mantra from “Yale Model”: the expense of active management is justified only when returns exceed those that could have been had by investing in a (cheap, transparent) passively-managed index fund for that same duration.
The myth of private equity has grown threadbare on its own grounds as well.
Private equity may be awash in pension-fund and endowment money, but not all funds are created equal. Since 2006, top decile (20%) funds have fared much better than the remaining 80%. There is intense competition for access to those top funds---but, as with everything else in private finance, access is not evenly distributed.
PE is full of “dry powder,” which is industry slang for pooled investor capital waiting to be invested---but there has been no commensurate increase in the numbers of companies available for acquisition (Hooke, pp. 64-6). Acquisition costs are up, along with other expenses.
A consequence of the above is that many funds no longer make “operational improvements” on the companies they acquire (Hooke pp. 92ff). These “improvements” are basic to the myth of private equity. They are the sector’s justification. The story goes that PE (and hedge funds) are swashbuckling bros who swoop in to rescue a company from selfish cupidity of management and workers and reorient cash flows under the sign of shareholder sovereignty, and, in this way, private-equity improves capitalism. It makes contemporary capitalism more itself. The proof of this lay with PE’s exit strategy: at the end of this operational retooling, PE exit by bringing the refurbished company public. The swarm of shareholders around the IPO demonstrates the awesome transformative power of the bros. Except that, today, PE funds, for the most part, don’t do that either. Instead, they are more likely to exit by selling an acquisition to another private-equity fund at an agreed-upon price.
To summarize: PE has a problem of mediocre returns. There is too much capital chasing too few opportunities. This has resulted in changes to the PE business model that undermines the sector’s justification on the industry’s own grounds.
Additionally, there are the problems with private equity in the context of transnational private finance. For example, private equity is exempt from the requirements for reporting on suspected money-laundering activity instituted by the 2001 Patriot Act. Real-estate brokers are as well. These two sectors appear to have benefitted enormously from flows of hot money. Private finance is where licit and illicit differ only by degree.
What is visible and what is not and why
If returns on alts haven’t beat the market since 2006, then, by the criterion set out by David Swensen himself argued should be used to evaluate the Yale Model, then the expense of active management cannot be justified. The same holds for fees paid to investment consultants, outsourced managers and, obviously, to alternative funds themselves. But, as Upton Sinclair once put it, it's difficult to get someone to understand something when his salary depends on not understanding it.
Against that, we would make the following demands:
Endowments must be vastly more transparent than they currently are about their portfolio holdings and account for the fees they are paying.
They must be vastly more transparent about CIO and endowment administration salaries, fees paid to consultants and investment advisors, data providers, and so on.
Endowments must stop reporting internal rates of return (IRR) as anything more than wishful thinking and give due weight to realized rates of return.
One reason for the current usage of IRR is that US News & World Report uses endowments’ reported values as a proxy for institutional prestige in their annual rankings of US colleges and universities.
Endowments must be seen as complicit with the social consequences of actions undertaken by the funds in which they are invested.
Endowments must get off the Yale Model
Pressure can be brought to bear along these lines in order to encourage endowment managers to change direction, along with trustees and upper administrators.
But people tend to resist changing direction because to do so implies they had previously been wrong. Such resistance is often reinforced by institutional power. Trustees are Observers, not The Observed. Mirroring the way “necessary cost-cutting” works under the sign of Yale Model, error can only happen among The Observed. In this way, power absolves.
The underlying problems are ideological, effects of a shared worldview rooted in finance and financialized thinking and financialized priorities. The underlying problem is a version of what Elizabeth Popp Berman has called “the economic style of reasoning”, in short.
The style holds together quite contradictory features. For all the talk in PPM about being pragmatic, the worldview adduced in Swensen is one in which there are no incentives to react to downturns or losses. There is a strange relation to risk, one that abstracts it and renders it external to the unfolding of normal accounting time from a long-term perspective. Similarly with the pension-fund managers interviewed by Institutional Investor who had no idea how much the funds pay out in fees to their alternative investment holdings: fees dematerialize into routine, automated processes; questions concerning them can only be in bad faith. [10]
From Swensen’s “long-term perspective,” the viewpoint of centuries appropriate to endowments, eventually, everything works out.
We looked at how one might acquire this worldview via practices that, over time, become habit, second nature, something that rearranges how one might have previously projected the world and redefines what matters and what does not in financialized terms. The process seems like the one Pascal described in the final paragraphs of The Wager.
But there is more work to be done.
Conclusion
We formed PRRC to be part of the project of moving beyond financialized higher education. In order to do so, we have to comprehend it. This component is by necessity descriptive, a pulling-together of information in order to talk about mis-allocations of institutional resources and power on the one hand and to explain and demystify finance and its instruments on the other. It is also an analytic undertaking, one that tries to understand the socio-cognitive underpinnings that allow certain things to be seen as absolutely necessary and others to not register at all.
Going forward, we will look at recent work on the sociology of activist trustees and the increasing prevalence of people in university administrations of people with background in finance, both professional and MBA.
We will have lots more to say about private equity and hedge funds.
But we will not limit ourselves to the topics adduced in this collection of texts.
For example, we want to look at the autocratic style of management as a successor to New Public Management and as a recurrent motif in the work produced by conservative non-profits and consultants to advise trustees on how to transform their schools into institutions that are run like for-profit corporations. Pursuit of this line of inquiry will let us situate financialized higher ed and its vicissitudes in the context of a broader conservative assault on higher education, the humanities in particular, that took shape across the 1970s in reaction against what right-wing business leaders saw as the “excessive democracy” of the movement in opposition to Vietnam, with its “cultural Marxism” and unseemly “questioning of hierarchy”.
We will also look at various “performance metrics” as weapons in this campaign, bibliometrics in particular, because they have been imposed by administrations on faculties even as they rely on databases that inevitably disadvantage the Humanities simply because they privilege journals as the primary medium for scholarly communication. We will look at this in the context of the colonization of libraries by corporate publishers as an aspect of a wider predation of colleges and universities by academic publishers. This disappearance of fair-use will detain us as well.
In this, we take heart from, and are inspired by, students around the country who say they want no part of the desiccated, transactional future on offer from today’s financialized higher education. They do not accept the “pragmatic” view of higher education as a job placement program. They do not see education as merely an investment with returns to be measured in future income. They reject the concentration of power in contemporary higher ed, the autocratic way in which that power is wielded, and the “economic style of reasoning” that shapes how the power is used---the narrowest form of “the economic style,” one rooted in the finance industry and MBA programs.
Our goal as Pattern Recognition Research Collective is to help articulate ways of thinking and organizing beyond finance and financialization. We look to provide running critical commentary on the ongoing legitimation crisis and higher education’s various roles in performing amplifying and creating it. We hope to talk with researchers who are contributing to the growing body of scholarly and popular work on the problems of contemporary financialized education, and write about their work, and with and through that work as well. But, most of all, we see activism, self-organization, as fundamental. At Oberlin, students have been met with sympathy and support from alumni and have seen the beginning of new kinds of cross-sectoral and community-rooted organizing that includes faculty and staff. We see this as a promising, a setting out on a path that may lead us all beyond financialization, to a more democratic form of higher education, with its educational mission firmly at its center.
We hope to write about many such developments in The Recognitions Project, and to connect together people involved in them.
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[1] The report also refers to it as “the endowment model.” Naming conventions are historical products.
[2] The report looks to differences in endowment contributions of operating budgets and so on because they are looking to measure the effects of losses on the schools. Another way to explain differences is losses is to look at how the particular endowments position themselves within the overall Yale Model approach. Humphries et.al. use the fair-value hierarchy as a proxy for including school x in the set “invests on the model” doesn’t allow for this perspective. Markov Processes produce endowment performance reports that show such differentiation. See their “Endowment Performance 2022: How the Mighty Have Fallen.”
[3] SK’s Philosophical Fragments is the main text for his worrying of the paradox. This paragraph is but a riff on it.
[4] A useful primer on opacity and valuation problems is available here. The relevant material starts with the expression” If you can’t explain it to a six-year-old you don’t understand it.”
[5] The text of the 3c1 exemption to the Investment Advisor Act of 1940 includes a psychological theory of risk in the form of a sketch. It describes wealthy individuals as “sophisticated investors” who understand risk better than did the unwashed of the general public who piled into stocks across the 1920s. They could afford to take losses: they were capable of modifying their behavior in anticipation of increased risk and/or threat losses. Institutional investors are not human beings. For them, risk appears to be dematerialized. We return to a version of it at the end of this article---but more thinking needs be done.
[6] As of 2022, but Bloomberg terminals have always been very expensive (yet they don’t lose market position).
[7] See for an example of an abundant literature Binder Davis and Bloom 2016.
[8] Humphries et al also point to other problems infecting the colleges and universities they studied in 2010 as well. Central was their tax-exempt status, which let schools slough off costs onto surrounding communities (62-7).
[9] For a good and recent discussion, see Chapter 4, “The Poor Investment Results” in Jeffrey Hooke’s The Myth of Private Equity (Columbia Business School Publishing, 2021) pp. 73-98.
[10] 11/17/2022 Some recently published research shows that PE internal rates of return are likely massaged by fund GP in cooperation with endowment and/or pension fund managers. Some critics argue that the sector is due for a reckoning, but that the consequences of such are unknowable for pension fund managers in particular. This conclusion is no surprise given information like that contained in the Institutional Investor article hot-linked above. Endowments would face the same problems. We’ll be writing more about this for Recognitions.