By: Rick Stouffer, Senior Energy Editor, Shale Energy Business Briefing
A new study commissioned by the Independent Petroleum Association of America (IPAA) suggests the costs associated with divestment of energy-related stocks from college and university investment portfolios could be enormous, resulting in the displacement of billions annually from school endowments.
Led by Daniel R Fischel, Professor Emeritus of Law and Business at the University of Chicago Law School, the study team tracked the performance of two investment portfolios over a 50-year period: one that included energy-related stocks, and another that did not.
Based on those models, Fischel and his team found optimal portfolios that included energy stocks generated average, absolute returns 0.7 percentage points greater than portfolios that excluded them — meaning the “divested” portfolio lost roughly 70 basis points relative to the optimal scenario for each year over the 50-year period in which the portfolios were active.
Applying that figure to the roughly $456 billion that constitutes total US university endowment assets, the impact of divestment on school endowment and investment funds has the potential to reach $3.2 billion per year – and that figure excludes the hundreds of millions of dollars in additional management fees that schools will be required to pay in order to comply with divestment policies.
“Every bit of economic evidence available to us today demonstrates that fossil-fuel divestment is a bad idea,” said Fischel. “The costs of divestment are clearly substantial and stand to have real financial impacts on the returns generated by endowment funds.”