[News] Yale University Under the Spotlight for Its Investment in Puerto Rican Debt

[Anti-Imperialist News]

https://theintercept.com/2018/02/20/yale-puerto-rico-debt/


  Yale University Under the Spotlight for Its Investment in Puerto Rican
  Debt

David Dayen <https://theintercept.com/staff/davidd/>- February 20 2018
------------------------------------------------------------------------

_A coalition of_ activists uncovered late last year that Yale 
University’s $27.2 billion endowment 
<https://news.yale.edu/2017/10/10/investment-return-113-brings-yale-endowment-value-272-billion>had 
a direct investment in Puerto Rican debt instruments through a Cayman 
Islands-registered shell corporation. It is believed to be the first 
documented proof of a university endowment holding Puerto Rican bonds 
directly in its portfolio. But the investment manager that maintained 
the bonds, Cyrus Capital, quietly sold them in January, just as critics 
were finalizing a campaign to condemn Yale for profiting from the crisis 
in Puerto Rico.

Yale’s endowment still has hundreds of millions in the care of at least 
four hedge fund managers that carry Puerto Rican bonds among their 
investments. In addition, Yale’s top alumni donor, Charles Johnson, is 
the retired board chair and largest shareholder in Franklin Resources, 
which holds $1.8 billion in Puerto Rican debt. Student advocates for 
Puerto Rico plan to continue to pressure the university, hoping to 
channel the campus passion for racial justice into economic justice for 
those on the island.

The activist coalition, which includes state and local elected 
officials, and labor, community, and campus groups, released its 
findings on Tuesday, calling on Yale’s endowment to fully disclose any 
other direct holdings in Puerto Rican debt — and cancel it. “The 
undersigned organizations urge you to provide leadership in relieving 
Puerto Rico’s unsustainable public debt burden,” reads a letter sent to 
Yale Chief Investment Officer David Swensen.

The call for a debt jubilee for the struggling island, not merely 
divestment in the holdings, significantly advances demands by Puerto 
Rico debt activists. “We wanted to figure out a way for Yale to take the 
lead for the people of Puerto Rico,” said Charles Decker, a political 
science Ph.D. candidate and vice president of research for Unite Here 
Local 33, Yale’s graduate employee union. “If the government is not 
going to do anything on Puerto Rico, it’s up to the elite dominant 
institutions to put pressure on managers and other universities to take 
action.”

In order to pay bondholders, who include hedge funds backed by 
universities such as Yale and Harvard, Puerto Rico is slashing spending 
on education on the island, 
<https://theintercept.com/2018/01/25/harvards-endowment-is-profiting-from-puerto-rican-debt-as-the-islands-schools-face-crippling-cuts/> 
while pursuing extreme versions of privatization. 
<https://theintercept.com/2017/11/08/puerto-rico-schools-system-with-post-katrina-new-orleans-as-the-model/>

It’s not the first time Yale’s endowment has been targeted due to its 
interests in Puerto Rico. Last month, protesters demanded 
<https://theintercept.com/2018/01/25/harvards-endowment-is-profiting-from-puerto-rican-debt-as-the-islands-schools-face-crippling-cuts/>that 
the endowment divest from the Baupost Group, the largest holder 
<https://theintercept.com/2017/10/03/we-can-finally-identify-one-of-the-largest-holders-of-puerto-rican-debt/>of 
COFINA bonds, which are backed by the island’s sales taxes. The Baupost 
investment in Puerto Rican debt had been secret until exposed by The 
Intercept 
<https://theintercept.com/2017/10/03/we-can-finally-identify-one-of-the-largest-holders-of-puerto-rican-debt/>in 
October. Baupost, run by billionaire money manager Seth Klarman, parked 
its COFINA bonds inside a shell corporation named Decagon Holdings. The 
limited partners in Decagon are unknown, but Yale does have $740 million 
invested with the hedge fund.

Unite Here researchers were able to find Yale’s imprint on CRS Master 
Fund LP, a shell corporation managed by Cyrus Capital 
<https://predictiveops.com/funds/8058316123258>, with whom the 
university has $547 million invested. According to information from 
Yale’s latest IRS return, known as a 990 form, the endowment had 88.75 
percent ownership of the CRS Master Fund. The “share of total income” 
listed on the 990 put Yale’s investment at $68.57 million. According to 
court documents, Cyrus Capital’s total stake in COFINA bonds is $94.1 
million.

As part of the senior COFINA bondholders’ coalition, Cyrus has 
aggressively demanded full repayment for its bonds, even as hurricanes 
Irma and Maria ravaged Puerto Rico and left it even more unable to repay 
its debts. COFINA bondholders have been fighting in court with other 
creditors to get first in line for repayment.

When researchers discovered the Yale holding, they shared the 
information with campus groups and began to organize around it. But 
before they could convene a formal action, they learned that the CRS 
Master Fund sold its COFINA bonds in January for between $64.6 million 
and $68.5 million. In fact, Cyrus Capital sold its entire stake 
<http://caribbeanbusiness.com/cyrus-capital-partners-sells-94-million-in-puerto-rico-sales-tax-bonds/>in 
the bonds and dismissed itself from the COFINA bondholders’ coalition. 
Since the researchers didn’t know the original purchase price, they 
cannot say what level of profit or loss this yielded the fund — or Yale.

“The campus community is not that big,” said Decker. “One plausible 
explanation is that they know we’re out there, and with people talking 
about Puerto Rico and debt so much, they were worried about the 
headlines.” Indeed, the sale came after Baupost had its Puerto Rico 
holdings exposed, and while endowment justice groups planned rallies to 
protest the Baupost holdings.

Cyrus Capital declined to comment.

Yale has previously enjoyed profits from distressed government debt. 
Bracebridge Capital, a secretive hedge fund 
<https://www.bloomberg.com/news/articles/2016-02-04/the-secretive-hedge-fund-that-s-generating-huge-profits-for-yale>in 
which Yale has staked over $1 billion in capital, was paid $1.15 billion 
after a 15-year battle over Argentinian debt, earning a 952 percent 
return on its initial investment. Yale itself made $300 million in 
profit on the Bracebridge deal in Argentina, a 660 percent return, 
according to the Yale graduate employee union’s research.

The story of Yale’s profit ended up on the front page of one of 
Argentina’s largest daily newspapers, Pagina 12 
<https://www.pagina12.com.ar/61998-buitres-con-titulo-universitario>. 
Decker surmises that the university didn’t want the same stories about 
profits from Puerto Rico’s misery to appear in U.S. media, so it sold 
off the debt before it could be highlighted.

_The coalition, which_ includes Unite Here Local 33, Yale Democratic 
Socialists, the Black Student Alliance, Unidad Latina en Acción 
<https://www.facebook.com/ULANewHaven/>New Haven, Make the Road 
Connecticut, and members of the New Haven Board of Alders 
<https://www.newhavenct.gov/gov/depts/alders/default.htm>and the 
Connecticut state legislature, did not halt its activities after the 
sale, and is instead demanding that Yale come clean on its stake in 
Puerto Rican debt through other investments.

In addition to Cyrus Capital, four other Yale endowment investment 
managers have Puerto Rican debt as part of their portfolios: Baupost, 
Fortress Investment Group, Corbin Capital Partners, and Carmel Asset 
Management. The debt holdings were confirmed through legal filings and 
media reports, including The Intercept’s report from October 
<https://theintercept.com/2017/10/03/we-can-finally-identify-one-of-the-largest-holders-of-puerto-rican-debt/>unmasking 
Baupost’s holdings. Swensen, Yale endowment’s chief investment officer, 
actually sits on Baupost’s advisory board, according to Klarman’s 2016 
letter to investors.

Yale alumni Charles Johnson donated $250 million to the school for two 
dormitories, the largest single donation in the school’s history. 
Johnson’s father founded Franklin Resources, a mutual fund company; he 
and his brother Rupert served as co-chairs, and his son Gregory is now 
chair and CEO. Franklin owns COFINA bonds, general obligation bonds, and 
bonds backed by the struggling electric power authority, PREPA; the 
firm’s total stake is $1.8 billion. Johnson is also the principal owner 
of the San Francisco Giants.

“By extracting wealth from a country without economic stability, Yale is 
actively exacerbating the economic collapse and suffering of Puerto Rico 
and its people,” said the Black Student Alliance at Yale in a statement. 
“As advocates for any marginalized groups, especially black and brown 
lives, we strongly urge Yale to forgive the debt in order to avoid 
sentencing millions of Puerto Rican citizens to lifetimes of poverty and 
forced economic migration.”

The letter to Yale chief investment officer Swensen makes the following 
three demands:

 1. Immediately disclose all Yale endowment holdings in Puerto Rican debt
 2. Cancel all Puerto Rican debt held as Yale and Franklin assets
 3. Write to other investment managers like Baupost LLC’s Seth Klarman
    and other universities urging them to cancel Puerto Rico’s debt

Yale did not respond to a request for comment. The school has previously 
said that its bond holdings are “ethically appropriate.”

The coalition hopes additional pressure will nudge the university into a 
leadership role. “I think we’ve seen in the past few years that issues 
of race are a real sore spot,” said Decker. “Puerto Rico is a bunch of 
issues, but a racial justice issue as well. There’s more appetite on 
campus now than I’ve seen before for holding Yale accountable on this.”

Meanwhile, Puerto Rico had its requests for a $300 million emergency 
loan for its power authority rejected, which officials fear will lead to 
rolling blackouts 
<https://www.elnuevodia.com/english/english/nota/growingconcernaboutenergy-2399702/>before 
power has even been fully restored. Several groups of Puerto Rican 
creditors released a letter 
<https://www.prnewswire.com/news-releases/puerto-ricos-creditors-unite-to-call-for-a-%20credible-pro-growth-fiscal-plan-300598668.html>last 
week complaining that the island’s latest fiscal plan allows the 
government to spend too much on payroll and not enough on repaying debt.

“As a Puerto Rican living in Connecticut, I am concerned about the role 
that Yale has in investing in hedge funds and corporations that are 
hurting my island,” said Ilanis Hernandez, a youth leader with Make the 
Road Connecticut. “I am committed to working with community allies to 
push Yale and other institutions to stand up for Puerto Rico and stop 
investing in hate.”

-- 
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863.9977 https://freedomarchives.org/
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