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<div id="reader-header" class="header" style="display: block;"> <font
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href="https://theintercept.com/2018/02/20/yale-puerto-rico-debt/">https://theintercept.com/2018/02/20/yale-puerto-rico-debt/</a></font>
<h1 id="reader-title">Yale University Under the Spotlight for
Its Investment in Puerto Rican Debt</h1>
<div class="PostByline-names"><a class="PostByline-link"
rel="author" href="https://theintercept.com/staff/davidd/"><span
itemprop="name">David Dayen</span></a><span
class="PostByline-date"> - February 20 2018</span></div>
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<p><span><u>A coalition of</u> activists uncovered late
last year that Yale University’s </span><a
href="https://news.yale.edu/2017/10/10/investment-return-113-brings-yale-endowment-value-272-billion"><span>$27.2
billion endowment</span></a><span> 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.</span></p>
<p><span>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.</span></p>
<p><span>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.</span></p>
<p><span>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.”</span></p>
<p>In order to pay bondholders, who include hedge funds
backed by universities such as Yale and Harvard,
Puerto Rico is slashing <a
href="https://theintercept.com/2018/01/25/harvards-endowment-is-profiting-from-puerto-rican-debt-as-the-islands-schools-face-crippling-cuts/">spending
on education on the island,</a> while pursuing
extreme <a
href="https://theintercept.com/2017/11/08/puerto-rico-schools-system-with-post-katrina-new-orleans-as-the-model/">versions
of privatization.</a></p>
<p><span>It’s not the first time Yale’s endowment has
been targeted due to its interests in Puerto Rico.
Last month, protesters </span><a
href="https://theintercept.com/2018/01/25/harvards-endowment-is-profiting-from-puerto-rican-debt-as-the-islands-schools-face-crippling-cuts/"><span>demanded</span></a><span>
that the endowment divest from the Baupost Group,
the </span><a
href="https://theintercept.com/2017/10/03/we-can-finally-identify-one-of-the-largest-holders-of-puerto-rican-debt/"><span>largest
holder</span></a><span> of COFINA bonds, which are
backed by the island’s sales taxes. The Baupost
investment in Puerto Rican debt had been secret
until </span><a
href="https://theintercept.com/2017/10/03/we-can-finally-identify-one-of-the-largest-holders-of-puerto-rican-debt/"><span>exposed
by The Intercept </span></a><span>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. </span></p>
<p><span>Unite Here researchers were able to find Yale’s
imprint on CRS Master Fund LP, a shell corporation </span><a
href="https://predictiveops.com/funds/8058316123258"><span>managed
by Cyrus Capital</span></a><span>, 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.</span></p>
<p><span>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.</span></p>
<p><span>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 </span><a
href="http://caribbeanbusiness.com/cyrus-capital-partners-sells-94-million-in-puerto-rico-sales-tax-bonds/"><span>sold
its entire stake</span></a><span> 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.</span></p>
<p><span>“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.</span></p>
<p><span>Cyrus Capital declined to comment.</span></p>
<p><span>Yale has previously enjoyed profits from
distressed government debt. Bracebridge Capital, a </span><a
href="https://www.bloomberg.com/news/articles/2016-02-04/the-secretive-hedge-fund-that-s-generating-huge-profits-for-yale"><span>secretive
hedge fund</span></a><span> 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. </span></p>
<p><span>The story of Yale’s profit ended up on the
front page of one of Argentina’s largest daily
newspapers, </span><a
href="https://www.pagina12.com.ar/61998-buitres-con-titulo-universitario"><span>Pagina
12</span></a><span>. 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.</span></p>
<span><u>The coalition, which</u> includes Unite Here
Local 33, Yale Democratic Socialists, the Black
Student Alliance, </span><a
href="https://www.facebook.com/ULANewHaven/"><span>Unidad
Latina en Acción</span></a><span> New Haven, Make
the Road Connecticut, and members of the </span><a
href="https://www.newhavenct.gov/gov/depts/alders/default.htm"><span>New
Haven Board of Alders</span></a><span> 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.</span>
<p><span>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 </span><a
href="https://theintercept.com/2017/10/03/we-can-finally-identify-one-of-the-largest-holders-of-puerto-rican-debt/"><span>report
from October</span></a><span> 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.</span></p>
<p><span>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.</span></p>
<p><span>“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.”</span></p>
<p><span>The letter to Yale chief investment officer
Swensen makes the following three demands:</span></p>
<ol>
<li><span>Immediately disclose all Yale endowment
holdings in Puerto Rican debt </span></li>
<li><span>Cancel all Puerto Rican debt held as Yale
and Franklin assets</span></li>
<li><span>Write to other investment managers like
Baupost LLC’s Seth Klarman and other universities
urging them to cancel Puerto Rico’s debt</span></li>
</ol>
<p><span>Yale did not respond to a request for comment.
The school has previously said that its bond
holdings are “ethically appropriate.” </span></p>
<p><span>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.”</span></p>
<p><span>Meanwhile, Puerto Rico had its requests for a
$300 million emergency loan for its power authority
rejected, which officials fear will lead to </span><a
href="https://www.elnuevodia.com/english/english/nota/growingconcernaboutenergy-2399702/"><span>rolling
blackouts</span></a><span> before power has even
been fully restored. Several groups of Puerto Rican
creditors </span><a
href="https://www.prnewswire.com/news-releases/puerto-ricos-creditors-unite-to-call-for-a-%20credible-pro-growth-fiscal-plan-300598668.html"><span>released
a letter</span></a><span> 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.</span></p>
<p><span>“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.”</span></p>
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