Activists urge Harvard to stop investing in Boston hedge fund that holds Puerto Rico debt
More than 200 activists and college students on Wednesday called on higher education endowments, including Harvard University’s, to withdraw their investments from a Boston hedge fund that holds nearly $1 billion of Puerto Rico’s debt.
The activists argue that the universities, which have invested hundreds of millions of dollars in the hedge fund firm Baupost Group, are stifling recovery efforts in Puerto Rico, where the government is facing the daunting task of rebuilding businesses, homes, and schools devastated by Hurricane Maria and repaying creditors.
Hurricane Maria leveled much of the US commonwealth in September, leaving scores dead and many without basic services such as electricity, even four months later. The island’s $70 billion debt and previous financial woes have compounded the problems. “We want Harvard University to show that it values justice rather than exploitation by divesting from Baupost unless it cancels its Puerto Rican debt holdings,” said Sam Heller, a member of the college’s Student Labor Action Movement.
The organization, along with community and union groups, protested Harvard’s investment on Wednesday. Activists plan to hold a similar event at Yale University on Thursday.
Jocelyn Bonadio-de Freitas, 32, a Harvard graduate student who has family in Puerto Rico, said she was disappointed in the university’s investment, which profits off an island that is struggling.
“With all the wealth, and with the clout it has, one would think that they would make more responsible decisions,” Bonadio-de Freitas said.
Harvard’s $37 billion endowment, the largest in the world for a college, has invested about $2 billion in a Baupost-controlled fund, according to Hedge Clippers, a New York group that scrutinizes hedge funds.
As one of Baupost’s most significant outside investors, Harvard can exercise some influence on the hedge fund’s operations, said Julio López Varona, a member of Hedge Clippers. “They have a big endowment; their investment sets a tone.”
Harvard declined to comment.
But the university’s hefty bet on Baupost-managed funds is no surprise. The Economist magazine once dubbed Seth Klarman, Baupost’s chief executive, the “Oracle of Boston,” comparing him to the investment giant Warren Buffett.
But Klarman and his firm have come under intense scrutiny in recent months after The Intercept reported that since 2015 the hedge fund had bought nearly $1 billion of Puerto Rico’s debt, which was backed by the island’s sales tax revenue.
Baupost was able to buy the distressed debt cheaply, with the expectation Puerto Rico would have to pay off the principal and interest, making money for investors.
After visiting hurricane-ravaged Puerto Rico, President Trump casually said that one way to help the island would be to wipe out its debt. The suggestion sowed concern among bondholders, who had lobbied Congress hard over the years to protect their investments. Administration officials quickly backed away from that idea.
Klarman dismissed suggestions for debt forgiveness as impractical in an investor letter in October, arguing it would make it more difficult for the island to borrow in the future.
Baupost expects to make less than planned from its bond purchases because the island’s situation has deteriorated further since the hurricane, it said. It hasn’t received any interest payments on the bonds from Puerto Rico since 2016.
“Baupost plans to continue to be a constructive partner in seeking a restructuring resolution that results in a fair outcome for all parties, including the people of Puerto Rico,” Klarman said in a statement. “A full and sustainable financial recovery for Puerto Rico is in the best interest of all constituents.”
Klarman declined to comment on the calls for universities to withdraw their endowment funds from Baupost.
Officials at Yale University, which according to Hedge Clippers has $710 million invested in Baupost, have so far rejected the calls to dump Baupost.
There’s no evidence Baupost has done anything illegal or inappropriate to collect the debt, said Jonathan Macey, chairman of the advisory committee on investor responsibility at Yale.
Activists, opposing apartheid in South Africa, privately run prisons, or tobacco companies, have a history of targeting college endowments, said Catharine Hill, managing director at Ithaka S+R, a higher education nonprofit, and former president of Vassar College. It can be a way to win change but the responses from universities can be mixed, she said.