New Haven, Connecticut- The Board of Trustees of Dwight Hall recently approved the Dwight Hall Socially Responsible Investment Fund announces that proposals for socially responsible endowment investments.  Developed by members of Dwight Hall’s student-run socially responsible investment (SRI) committee, the first of its kind in the country, the Market-Driven and Mission-Driven Portfolios aim to promote Dwight Hall’s social values while paying their share of the Dwight Hall operating budget.

The Dwight Hall Socially Responsible Investment Fund was created in 2007 by the Board of Trustees of Dwight Hall, Yale University’s umbrella organization for public service and social justice groups, to invest a portion of Dwight Hall’s endowment according to environmental, social, and corporate governance guidelines. As the first undergraduate-run socially responsible investment endowment in the nation, the Fund aims to bring Dwight Hall’s investment policy in line with its institutional commitment to social change.  “The Dwight Hall SRI Fund is an innovative form of service that allows Dwight Hall to dedicate its resources fully to improving the communities in which it operates,” says committee chair Thomas Meyer ‘11.

Composed of about ten undergraduate students who receive mentoring from graduate students at the Yale School of Management, the Dwight Hall SRI Fund represents the nation’s first undergraduate socially responsible investment group whose returns are expected to support the institution with which it is affiliated.  The Fund has become the leading student-run socially responsible investment initiatives in the country, and its combined market- and mission-based approach represents an innovative SRI model.

When compiling their Market-Driven Portfolio proposal, students considered the entire universe of socially responsible investment funds and applicable traditional funds, using funnel analysis to eliminate funds that did not meet the group’s needs.  Positive and negative screening allowed students to evaluate the environmental, labor, and corporate governance policies of funds’ holdings.  Funds with assets greater than $200 million under management were expected to engage in shareholder advocacy.  Students also considered funds’ past performance, manager experience, duration of existence, investment strategy, and fee structure.  Each fund in the portfolio is expected to perform in line with or outperform the standard benchmark of its asset class.

The Mission-Driven Portfolio consists of a $10,000 investment in a certificate of deposit at The Community’s Bank of Bridgeport, Connecticut.  Chartered under the Community Reinvestment Act, the Bridgeport bank focuses on providing individuals underserved by the traditional banking community with access to credit.  Both FDIC-insured and classified as a community development bank, The Community’s Bank met the group’s criteria for financial viability and social impact.  The bank was selected after extensive research on investment options that would benefit the New Haven-area communities served by Dwight Hall.

Socially responsible investing refers to an investment strategy that seeks to maximize both financial return and social good, taking into account the social impact of a particular investment when making acquisition decisions.  This approach has roots in investment strategies of nineteenth century American religious groups.  It became increasingly prominent in the 1990s when institutional divestment of holdings with ties to South Africa—including at Dwight Hall—generated significant pressure to end apartheid. “With the support of hundreds of institutional investors representing trillions of dollars, responsible investment is playing a growing and prominent role in modern finance,” says committee member Aaron Podolny ‘12.

Following these initial investments, the Dwight Hall socially responsible investment committee will monitor the overall portfolio’s performance to ensure that it continues to meet their investment objectives.  The group will also explore options for further mission-based community investments.  A letter of intent has already been sent to help the First Community Bank of New Haven complete its federal chartering process.  “It’s exciting to see the country’s first undergraduate SRI endowment move forward with an investment strategy that not only will help to support the programs that Dwight Hall runs but also will grow in a healthy and responsible way,” says Meyer.

By Daniel Ni

Over the past thirty years, China’s GDP has grown by over 10% per year, making it the second largest economy in the world behind only the United States. According to the Economist, the US and the Euro zone are expected to have 2.4% and 0.6% increases in their respective GDPs while China’s GDP is expected to increase by a whopping 8.6%.

However, China’s debt concerns many experts; China’s national government owes a debt equal to roughly 70% of the 2009 Chinese GDP. By contrast, the United States’ national government owes a debt equal to roughly 50% of the 2009 U.S. GDP. Experts worry that the more debt that is on the books, the more vulnerable borrowers will be to shocks.

Another issue that critics and naysayers point to is the competitive advantage enjoyed by Chinese exporters due to the artificially low value of the yuan is a double edged sword, as the low value of the yuan is putting pressure on domestic prices, contributing to inflation that has hovered around 7% since the yuan became unpegged.

Some experts have predicted a decline of the dollar in 2010; such a development could prove disastrous for the Chinese who hold trillions in U.S. debt. If the dollar declines, not only do Chinese asset values decline, Chinese exporters will also be hurt. However, the Chinese cannot liquidate their assets without causing a depreciation of the dollar.

However, China has been proving naysayers wrong for years, as early as 2001 experts were already predicting the burst of the Chinese bubble. Maybe China can continue surprising us for another decade.

by Ray Xi

On June 11, 2009, Africa will step into the center of the world stage.  No, it won’t be because of AIDS or malaria, genocide or corruption.  We won’t be talking about aid programs or Africa’s backwardness.  Instead, we will be cheering for something far happier, more dramatic, and decidedly more beautiful.  It is because South Africa is hosting the FIFA World Cup.

The World Cup is the most widely viewed sporting event in the world, and as the Super Bowl and Olympics have shown, sport has become an increasingly powerful political and economic force.  From hosting the games alone, South Africa expects to generate almost $3 billion in GDP, roughly one percent of its economy.  With four weeks in the global spotlight, its government has an unrestricted opportunity to bolster its political voice and stake a greater share on the global stage.

Yet for South Africa, and by extension, for the continent as a whole, the World Cup is much more than a stimulus package or political tool.  It is an opportunity for Africa to display its history, culture, vitality, and modernity.  It is an unprecedented chance for the world’s most neglected continent to control its own global image, one too often defined by pictures of famished children and burnt villages.  Much as the Beijing Olympics served as a coming-out party for the Chinese, the South Africa World Cup could mark the beginning of a new Africa, a continent no longer seen as a stagnant land of despair, but a place of abundant life and opportunity.

In many ways, South Africa is on course to realize these hopes.  Construction is on schedule, and the country seems fully prepared to host the coming games, silencing many critics who doubted any African nation could manage such a colossal event.  Things are even looking good for African soccer.  With Cameroon, Nigeria, and the Ivory Coast fielding some of the strongest African squads in recent memory, we may even see an African team lift the World Cup trophy on home soil.  It would be the perfect ending to Africa’s own coming-out party

by Nabeem Hashem

Like President Obama, Japanese Prime Minister Yukio Hatoyama enjoyed a hopeful, albeit brief, honeymoon period with the Japanese public after last summer’s historic election in which the Democratic Party of Japan ended the Liberal Democratic Party’s fifty year rule. But as he brings his country into 2010, Hatoyama has little to celebrate about. After his approval rating slid to 50% from a high of 70% in September due to a political donations scandal and disputes with the U.S., Hatoyama admitted in a New Year’s address, “Our honeymoon period is over.”

Hatoyama and his party have been forced to regroup and refocus their efforts for 2010 on fixing Japan’s sluggish economy. Although it emerged from recession in the third quarter of last year, Japan still faces high unemployment, deflation, and soaring deficits. Unfortunately, these are problems with conflicting solutions. Hatoyama has made fighting deflation and cutting unemployment his clear priorities, at the expense of raising the deficit. In December, he unveiled a record $1 trillion budget for the 2010 fiscal year, designed to increase the spending power of households.

This option comes with considerable economic and political risks. Public optimism is key- unless there are indications that economic stagnation will end, households may decide to save the money funneled to them by the government instead of spending it, leading to further stagnation. Yet this kind of optimism will be hard to come by with poor employment figures and continuing deflation.  On top of this, Japan’s debt-to-GDP ratio is quickly approaching 200%, the highest in the developed world, leading many in the country to believe that massive public spending will prove to be unsustainable. Hatoyama’s government will need to bring about quick results to ease concerns and boost public confidence if it wants to achieve its objectives.

Still, Hatoyama seems to have a good sense of his challenges and the resources he can use to combat them. After the resignation of his finance minister, Hatoyama appointed deputy prime minister Naoto Kan to the position. Kan, known for battling bureaucrats throughout his career, is expected to help bring about reform by shifting power away from the bureaucrats of the powerful and highly secretive Finance Ministry, which has been entrenched in the policies of the LDP for the last fifty years.  How far this kind of judgment will take Hatoyama will be seen after the upcoming upper house elections this summer.

by James Luo

The rise of China in the international market must be the foremost rags-to-riches story of recent times. With the country’s economic growth comes an increasingly significant role in the arena of global politics. If the 2000s were the story China’s economic growth-spurt, then the 2010s are likely to be the tale of its coming-of-age as a global power.

China will not have to wait long for the global limelight. In May, the 2010 World Expo will be held in Shanghai. The event will feature the breathtaking Expo Axis building and magnetically levitating trains, developments fitting the event slogan: “Better City—Better Life.” Pageantry aside, the Expo falls in the tradition of World Fairs that had announced the rise of London and Paris in the 19^th century. From today’s perspective, it is tempting to think that China is destined to follow the macronarrative of economic and political ascent of old European powers. But the world faces different issues today and the Peoples’ Republic will act accordingly.

China demonstrated some of its mettle in the international scene during the Copenhagen climate talks of late 2009. The country resisted calls for emissions reductions in the face of essentially universal pressure. Though its first move is one of environmental stubbornness, China certainly recognizes its substantial leveraging power at the global level. This influence, derived from the country’s prominent economic position, will be used to increasing effect in coming years.

China, however, will not be reckless with its recently-realized power. Beijing is burdened with the domestic concerns of the People’s Republic—a population of almost a billion and a half reaching for the promises of modern life. China’s test will be whether it can deliver the “Better City—Better Life” to its citizens while maturing into a responsible and responsive member of the global community.

The immediate and intuitive effect on those graduating from college in a stagnating economy is obvious: they are less likely to be hired, especially for the most desirable jobs. However, how do those who graduate during a recession fare over the course of their careers compared to graduates during periods of economic growth?

Yale School of Management Professor Lisa Kahn addresses this question in her October 2007 paper titled “The Long-Term Labor Market Consequences of Graduating from College in a Bad Economy.” Relying on detailed year-by-year occupational and educational information from the National Longitudinal Survey of Youth (NLSY) for white males who graduated from college between 1979 and 1988, Kahn followed participants for 14 to 23 years after college graduation to study the effect on employment status, occupational attainment, job tenure, wages, and enrollment in graduate schools as a function of economic conditions.

One uplifting finding is that economic conditions at the time of graduation have no substantial long-term effect on labor supply. As a whole, those who graduate during a recession tend to have the same probability of being employed and will generally work the same amount per year as those graduates entering the job market in a strong economy. The short-term effects of increased unemployment in a recession thus appear to be overcome by future economic expansion and growth in the job market.

Less encouraging is that while they may be equally likely to have a job, students who receive their undergraduate degrees during turbulent economic times tend to occupy less desirable positions. Using ratings of “occupational prestige” as a proxy for job desirability, Kahn found that recession graduates tend to have less prestigious jobs compared to their classmates who graduate in boom years. They also lose valuable mobility: on average, those beginning work in harsh economic conditions remained for longer tenures at their jobs and were unable to fully shift into better positions after the economy picked up.
Recession graduates also tend to command lower salaries than their more fortunate peers. Kahn found strong negative wage effects in the short term (up to 14 years), which persist, albeit more weakly, over a period greater than 20 years. With an average loss in wages of between 1% and 18% per year, recession graduates generally earn 3% to 5% less over a 20-year period. This negative wage effect is consistent with Kahn’s other findings: employees in positions of less prestige tend to earn less and those who have worked for longer periods of time at the same job generally have slower rates of wage growth.

Given that recession graduates appear to be destined for unimpressive and underpaid positions (if indeed they are able to secure any work at all), would students be better off waiting to enter the labor market until the economy recovers? Foregoing a year or two of earnings could possibly result in a smaller loss than the overall wage losses that Kahn predicted, and a graduate could be hired for a more desirable position. Unsurprisingly, years enrolled in school after college and the probability of attaining a graduate degree increase for those who receive their undergraduate degrees in times of higher national unemployment. Graduate school, which has been shown to increase future earnings in other studies, may be the ideal solution to combating the disadvantages of graduating from college in a struggling economy—for those who can afford to wait.

From hedge funds to investment banks, private equity firms to university endowments, virtually no financial institution has emerged unscathed from the ongoing economic turbulence.  While written before universities reported their disappointing year-end returns, the 2008 study “Secrets of the Academy: The Drivers of the University Endowment Success” by Josh Lerner of Harvard University and Antoinette Schoar and Jialan Wang of Massachusetts Institute of Technology identifies several factors that may be responsible for the disparities in endowment size across a wide range of educational institutions.

An endowment is the reserve of money that provides a university with a source of perpetual income; thus, it is important that their managers invest well to produce high returns year after year. The median return for the 1,300 schools surveyed was 6.9 percent, but some schools have clearly surpassed all the others. In 1993, the Ivy League had endowments of greater than 30 times the median size of those at public universities; in 2007, this gap increased to 70 times the median.

The researchers concentrate on investment performance as the biggest source of change in endowment size, with annual expenditures and donations being the other two major factors. Investment performance is naturally driven by the skill of the university’s endowment managers. The authors speculate that schools with large endowments and students with high SAT scores tend to attract managers with more sophisticated knowledge of financial practices. While higher SAT scores are not strongly correlated with endowment size, they may serve as proxies for attractive features such as the prestige, administrative skill, and alumni network associated with the university. These are all important incentives for more skilled managers to leave their jobs in the financial industry and lead Ivy League investment teams.

The study found that having specialized, as opposed to generalized, asset managers running the endowment did have an immediate and tangible effect. The most obvious of these has been Ivy League endowment managers’ aggressive and conspicuous investment in alternative and illiquid assets such as timber and private equity funds over the period from the early 1990s to the mid-2000s. Previously, most managers had allocated an average of 11 percent to these asset classes; by 2007, the figure was around 21 percent.

If alternative assets have generated such impressive returns for the Yale and Harvard investment funds, why have so few others followed this strategy? The answer reveals something of a self-perpetuating cycle: since academic prestige seems to be correlated with large endowments, the most exclusive universities are able to attract the most talented investment managers, who have not only the access but also the requisite experience to make the most of these specialized investment opportunities. In addition, as “pioneers” of alternative asset investment and holders of vast capital reserves, the Ivy League schools are able to gain access to the top echelon of alternative funds, which have been highly profitable for the past 25 years. With priority access to the best investment professionals and the most lucrative opportunities, it’s no wonder that the rich appear to be getting richer. And yet, as recent events have reminded us, there are limits to extraordinary returns, and even the investment professionals of the wealthiest schools cannot wipe away all risk.