Venture

Proposed legislation would force US higher education endowments to reveal where they invest

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Low angle view of a government building, Capitol Building, Washington DC, USA
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In January, Missouri Representative Emanuel Cleaver will introduce the Endowment Transparency Act into Congress, a move that could, frankly, change everything.

Cleaver’s proposed legislation seeks to amend the Higher Education Act of 1965 to require universities and colleges to share information about how and whether they are allocating endowment investment funds to women- and minority-owned firms. These higher education institutions, which collectively manage more than $821 billion in assets, have been notoriously secretive about where they invest money and, despite calls for change, many have refused transparency.

Educational behemoths play a critical role in the venture market as limited partners. TechCrunch previously reported on the pressing need for those at the top to bear more responsibility for the uneven venture landscape that disproportionately shuts out women and people of color. Those calls have turned to cries for more diverse fund managers and more money invested into minority-led funds — or at least criteria that LPs hold venture general partners accountable for the type of companies in which they invest.

Harrowing stats on the number of diverse fund managers, paired with the dearth of capital allocated to minority fund managers and founders, is indicative of the role endowments can play in maintaining existing inequities. Speaking with TechCrunch, Cleaver said when he attempted to reach out to higher education institutions to discuss their reticent behavior regarding asset managerial diversity and allocation, even he, at times, had doors shut in his face.

“These colleges brag about inclusion because they have minorities on their faculty and an inclusive student body, so they think everything is OK,” he said. “But let me just say, it was noble to desegregate a student body and faculty, but it is nobler to desegregate economics because they are reasons things are as they are.”

As it stands, the majority of venture dollars go first to white male fund managers, who in turn invest the capital into white male founders. Two years ago, Cleaver, alongside former Massachusetts Representative Joe Kennedy III, attempted to raise awareness regarding the lack of diverse fund managers. Simply, it’s a mirrortocracy, and it’s one reason the bill aims to ensure that educational endowments are also providing diverse fund managers the same opportunities as their white male counterparts.

“There is a need for mountains of information to help the nation realize and recognize what is going on with this extremely rich sector of our secondary education system that has not desegregated,” Cleaver added.

The Endowment Transparency Act would require endowment allocation data to be collected annually alongside other information colleges and universities currently send to the federal government. It would also require the Minority Business Development Agency to publish a report every two years recommending better ways to use historically overlooked fund managers in higher education investments and authorize a conference every five years to help foster networks and business opportunities among educational institutions, investment firms and advisers.

Hessie Jones, a partner at MATR Ventures, said Cleaver’s proposed amendment is an admirable attempt to change a broken system and cited a letter that Cleaver and Kennedy wrote in 2020, stating that “women- and minority-owned firms manage a penny for every dollar managed by firms owned by white men.”

“What Representative Cleaver has proposed is a fix [for a problem] that is endemic throughout the investment community,” Jones told TechCrunch. “What has seemingly worked has not taken into consideration the outsized opportunity if endowment managers were to look beyond their historical asset portfolios and realize the returns that remain untapped.”

Brandon Brooks, a founding partner at Overlooked Ventures, called the proposed legislation a “great start” and said that it could set precedent for transparency in the investment industry as a whole. “I think starting with university endowments is the right way to go,” Brooks told TechCrunch. “It’ll be interesting to see who supports this and who doesn’t. Transparency is the beginning of change.”

Cleaver said there is a strong likelihood that others in Congress will rally around the bill as people have come to realize the importance of tackling racial and gender inequity within financial investments. When asked about how institutions responded, he said some had been outright “nasty” toward him. One prestigious school, for example, told him to essentially leave them alone.

“I hope these folks realize they are segregationist,” he said of that university and others who refuse to diversify their endowment allocators and allocations. “It’s like saying, ‘We as a school will allow anyone to come to the school, but you’ve gone too far when you bring up the endowment when you start talking about the money.’”

Though some are starting to open up, he said. “I’m sure they may not be happy, but I think they realize there’s a problem,” he added. After all, he noted, these educational institutions receive taxpayer money and benefit from tax exemptions from the federal government. Even Uncle Sam has a right to peek into the shadows.

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