This post by Trevor Nelson, of SIILK - Faculty and Student Connection, is part of a series in which IEN members and peer learning groups share their thinking about intentional endowment investing to address racial injustice and other diversity, equity, and inclusion themes. Follow along to read students' insights into DEI and the "S" factor in ESG.
Trevor Nelson, Student-Founder of Student-Managed Investment Funds at North Carolina A&T State University(NCAT) and NCAT Alumnus
"The function of education is to teach one to think intensively and to think critically. Intelligence plus character – that is the goal of true education." – MLK. Did you know Martin Luther King is a graduate of a Historically Black College and University (HBCU)? He graduated from Morehouse College in 1948. I am also a graduate of a historically black institution - North Carolina A&T State University, the nation's largest public HBCU.
So how are HBCUs and ESG investing correlated? This blog will focus on the correlation between the two by highlighting student-managed funds at HBCUs and the opportunities to foster student engagement through these platforms.
State of the Field
HBCUs represent about 3 percent of two-year and four-year public and private non-profit institutions that participate in federal student financial aid programs, but award 17 percent of all bachelor's degrees earned by black students. Furthermore, HBCUs have awarded approximately a quarter (24 percent) of the bachelor's degrees earned by black students in science, technology, engineering, and mathematics (STEM) since the early 2000s. Despite this, both public and private HBCU endowments lag behind those of non-HBCUs by at least 70 percent. This depicts the resilience of these preeminent institutions that have a legacy of supporting minority students.
After analyzing a list of student-managed investment funds (SMIFs) from the Consortium of Student-Managed Investment Funds there is only one HBCU listed by the organization representing SMIFs across the nation, which is negative considering HBCUs account for an outsized number of black graduates. I know this list is not comprehensive because my alma mater, North Carolina A&T State University (NCAT), is not represented. However, I had a hard time finding more than five HBCUs with student-managed investment funds through independent research. There are 101 HBCUs, which means less than 10% of HBCUs have funds. Moreover, the average student fund size is $2.1 million, which would account for 20% of the average HBCU endowment, assuming research stating the average HBCU endowment size is $12 million. See the infographic below, highlighting two SMIFs at HBCUs and funds at other schools. The largest fund, at the University of Wisconsin-Madison, was almost the size of NCAT’s endowment. More recent findings show Wisconsin-Madison students manage over $60 million, which would make their student fund larger than NCAT’s endowment.
Building Real-World Sustainable Investing Experience
As the founder of the SMIF at NCAT, I can speak to my experience. I had the opportunity to co-create the investment policy, obtain Bloomberg and FactSet certifications, and evaluate portfolio construction over the six months we were actively investing. Research conducted by Jody Murphy of Colby-Sawyer College and John Clinebell of the University of Northern Colorado shows a positive connection to participating in SMIFs and an increased understanding of investment concepts and soft skills such as communication. In addition, their research showed that participation in SMIF influenced career decisions. As one of three HBCU interns at Morgan Stanley in 2018, I firmly believe my experience with a SMIF both afforded and informed my opportunity to work on a trading floor in New York City. Throughout my tenure in college, the NCAT SMIF was one of the best opportunities I had, and I see tremendous growth areas within the platform created by SMIFs on the campuses of HBCUs.
Upon graduating from my HBCU, I was afforded the opportunity to attend the Socially Responsible Investing Conference as a scholar. There I was exposed to countless investment methodologies; all focused on one thing – impact. Two ideas that stood out as opportunities on HBCU campuses were shareholder advocacy and divestment. A student-led investment group at Yale prepared the first-ever shareholder resolution submitted to Exxon Mobil. In addition, other students were engaged in conversations regarding divestment at their respective schools. During my tenure at NCAT and through dialogue with other peers, we seldomly engaged in conversations regarding what our school was doing with endowment dollars.
While other schools may have larger endowments, I firmly believe allocating dollars in a fiscally and socially responsible manner will speak volumes to constituents concerned with activities at HBCUs. Consequently, this could lead to diverse asset managers having opportunities to manage endowment dollars, cash could drive impact through innovative models like the one created by the fintech startup CNote, and students could have a vantage view to how institutional money is managed. The results of increased engagement from students related to HBCU endowments and increased programming connected to SMIFs would be immensely valuable to all stakeholders. HBCUs provide a necessary voice and leveraging student-funds as a tool to drive change could lead to excellent outcomes.
Financial Performance of Sustainable SMIFs
A myth that continually has to be dispelled in the ESG investing landscape is the idea of concessionary returns or the idea you can’t do well by doing good. While a student fund’s primary goal will likely never wholly substitute institutional management, it can provide an interesting case study for what is possible in the real world. During the semester I led the NCAT SMIF, we outperformed hedge funds.
Moreover, universities like Emory are proving to be pioneers in the micro-lending space. Their impact investing group is led by students and shows early signs of success with two loans being fully paid back. If schools combined student and faculty research, could universities produce insight to catalyze investment in the ESG space? I see very little reason to believe the contrary. Despite the differences associated with student funds and endowments compared to more traditional asset allocators, unique insight can be gained from universities' work. Research from schools has supported the development of countless innovations and frameworks, and I see tremendous opportunity for this work to expand into the ESG investing space. The work by students at universities has proven to work, and through more success, I hope more traditional asset allocators will adopt more socially focused investment strategies. If students can demonstrate impact investing is not concessionary – what is your excuse?
If the function of education is to teach intensively and think critically, what better way to achieve this than increasing the programming associated with student-managed funds at HBCUs? Corporations can support by providing seed capital for funds, allowing access to professionals, and supplementing the cost of expensive finance tools like Bloomberg Terminals. Students can foster more engagement by adopting practices similar to those executed at Yale to encourage shareholder resolutions. Finally, HBCUs can leverage existing resources, including alumni networks, endowment meetings, and university-sponsored internships to provide additive experiential learning opportunities. As many people look to find ways to address this country’s many racial injustices supporting student funds at HBCUs may be a great place to start.