Graphic by Rachel Yoon / North by Northwestern

Students gathered on Deering Meadow in the late morning of Thursday, April 25, surrounded by the smell of damp earth and grass as a cool breeze blew through the trees. On the lawn in front of Deering Library, some held hands and danced Dabke, a traditional Palestinian dance in which the students’ feet fly to the beat resounding from speakers. Students talk and eat pizza sitting on the grass, some checking their Canvas notifications or reading. Deering Meadow, at the moment, does not seem that different from other spring mornings on campus, except for the presence of at least 20 tents.

Though it has since been taken down, the encampment at Northwestern was one of dozens of others at colleges and universities across the world, assembled to protest the War in Palestine and Israel. The 7-month-old conflict has now resulted in the deaths of more than 34,500 Palestinians and 1,200 Israelis as of May 4, and many activists condemn Israel’s actions over the past few months. Currently, around 1.7 million Palestinians are facing displacement and a director of the U.N. World Food Program called the situation “full-blown famine.

University encampments across the world, including Northwestern’s, presented variations of demands to administrators. However, one chant repeats itself over and over from many different protests: “Disclose, divest, we will not stop, we will not rest.”

Divestment is a tool used by students in the past, and most of the time it involves their university’s divestiture of funds, stocks and investments that oppose the students’ cause. In this case, students are calling for different types of divestiture depending on the encampment, including companies with ties to Israel or arms manufacturers. Northwestern protestors’ are demanding that “Northwestern divest from all defense stocks and investments and from all companies that support Israeli apartheid,” according to the Northwestern People’s Resolution.

However, one thing remains murky throughout these articulated demands and protests: what exactly is a university endowment, how does it work, and what does the divestment process look like?

Disclaimer: Northwestern University’s Investment Office has not responded to North By Northwestern’s request for comment. The information below is based on experts’ experiences and other news outlets, which cannot speak specifically about Northwestern’s endowment.

What is the endowment?

The endowment is a collection of funds that a school can pull from, typically periodically, to cover different kinds of costs. Most of the time, the endowment fund comes from significant donor dollars, not student tuition.

The endowment, though, is not a fixed set of money that simply sits in a bank account. Instead, the endowment money is meant to support itself, through investment, and exist permanently, according to Drew Berg, Family Investment Advisor at Arlington Family Offices and McCormick 1996 alum. Formerly, Berg worked with Diversified Trust for 18 years, managing institutional clients, including college and university endowments.

“What falls in [to the endowment realm] are donations that are intended to exist in perpetuity,” said Berg. “A percentage of them is used each year to go to a specific program or just be used to support the university in general.”

These dollars function mainly as restricted or unrestricted funds. Unrestricted funds mean the institution can utilize the funds the way they see fit. Restricted, though? Not so much. For these dollars, there are specific ways that the money has to be used, including the money generated through investment.

According to Berg, one can imagine the entire endowment as a pie. Part of the pie is restricted money, part of it is unrestricted. Most of the work separating the two is done in accounting, rather than investing. Typically, the investment manager will treat the endowment as one singular entity and invest it as such.

“If you’re the endowment manager, and you’ve got to manage 1,000 different portfolios, some of which are hundreds of millions and some of which are tens of thousands, it becomes an impossible task,” Berg said. “It’s kind of a single omnibus pool.”

There are some exceptions, such as money that needs to be spent in a few years or has specific rules on investment. However, endowments for institutions like Northwestern’s are often so large that they don't necessarily need the money governed by these rules.

How is the endowment handled?

Not only does having this “pie” of investment help with managing logistics, but it also assists with scale. Institutions like Northwestern have endowments that are large enough to hire their own team that focuses only on investment work.

For Northwestern, this entity is the Investment Office, which is led by VP and Chief Investment Officer (CIO) Amy Falls.

“The CIO hires staff to do all the work of the Investment Office, which includes [vetting] and selecting outside managers and funds to allocate portions of the endowment to for day-to-day investment decisions,” Berg said.

These external investment managers will actually do the work of investing the endowment into a combination of public and private equity, venture capital, absolute return, fixed income and real assets.

The Board of Trustees does most likely delegate the day-to-day running of the endowment to the Investment Office, which is entirely responsible for managing the endowment’s long-term growth. The Investment Office most likely reports to an investment committee, which then will report to the Board.

According to Berg, for the Investment Office and others managing the endowment, legally the endowment comes first, even ahead of the school. This is part of why they exist as independent entities.

“What is expected of [the Investment Office or others involved] is to make reasonable decisions and put in place reasonable policy and governance that will help maximize returns of the endowment which will benefit the school long-term,” Berg said.

What does this mean for divestment?

The Illinois state legislature put the most current “fiduciary responsibility” into law in 2009, and Berg says that it can complicate the idea of divestment, though there is precedent from the past. Examples include South African and fossil fuels divestment, which occurred in the 1980s and 2010s, respectively.

The Uniform Prudent Management of Institutional Funds Act (UPMIFA) is the current legislation in place, and it states that each person investing an endowment should invest “with the care an ordinarily prudent person in a like position would exercise under similar circumstances.” So basically, don’t be stupid with the endowment.

For the 2015 fossil fuels divestment movement, NU’s Board of Trustees did choose to partially divest from “companies identified as pursuing poor practice” regarding climate change. The Board said in an open letter that they would focus future investments on greener companies and track the endowment’s carbon footprint. However, the letter still emphasized the Board’s responsibility to the endowment as their main priority.

“Any constraints on investment activities have the potential to reduce long term returns,” the letter read. “As such, the Board remains committed to the principle of enacting only those policies which it believes are both urgently important and highly likely to result in real as opposed to symbolic change.”

With these precedents in mind, the future of Northwestern’s investments is not entirely clear. It is possible to join values-based priorities and financial priorities in endowment management, but there is a natural tension between the two.

This tension makes sense. On one hand, If an investment manager needs to choose investments based on values, then financial return might be lessened. On the other, if an investment manager prioritizes high return on investment, then values may be compromised. A system that prioritizes both will need to be balanced, said Berg.

“The key is having well-defined policy and an intentional framework in place that provides the roadmap for what needs to be accomplished in the management of an endowment portfolio and how that will be accomplished,” Berg stated over email.