While Harvard’s foundation is abandoning fossil fuels, the oil-rich University of Texas is catching up

Harvard University’s endowment, currently valued at a staggering $50.9 billion, has been the largest among academic institutions for more than 35 years. But the University of Texas is hot on his heels.

The University of Texas hopes to regain the top spot it ceded to Harvard in 1986. She’s now worth $42.3 billion, thanks in part to the royalties she earns from oil and natural gas, according to new data. The university owns more than 2 million acres of land in West Texas.

“It’s about three times the size of Rhode Island,” says Ray Perryman, an economic consultant from Waco, Texas. “It’s a very large area.”

“Production has increased significantly in recent years, and as a result, the lands are now able to generate literally hundreds of millions of dollars a year in endowments for the university systems,” says Perryman. The University of Texas and Texas A&M will share proceeds.

That income was ballast during a difficult period recently, when the stock market fell more than 10%. In fiscal 2022, academic foundations had their lowest median returns since fiscal 2009, according to consulting firm Cambridge Associates. In recent years, foundations have invested heavily in riskier assets, including private equity and venture capital funds, in hopes of maximizing their returns.

After Russia launched its invasion of Ukraine, oil prices surged to over $120 a barrel.

“In many ways, the University of Texas is more of a sovereign wealth fund for a place like Norway,” says Charlie Eaton, a sociology professor at the University of California, Merced, who studies college endowments.

Yes, the University of Texas invests in stocks and bonds and more complicated financial instruments like its peers. But these schools have scaled back investments in natural resources, traditionally viewed as inflation hedges.

For many years inflation was low and not a big problem. And colleges and universities have faced a lot of pressure from students and alumni to divest from fossil fuels.

That may mean a compromise, according to Chris Brightman, who used to head the University of Virginia Foundation.

“There are some costs associated with limiting your ability to pursue anything other than best risk-adjusted returns over the long run,” he says.

In simpler terms, if your goal isn’t just to make the most money possible, you can make less money.

Harvard’s endowment shrank by just over 2% in fiscal 2022, which ended in June — more than $2 billion.

In his annual report, Narv Narvekar, the CEO of Harvard Management Co., noted that “a number of institutional investors have entered the conventional energy sector.” But Harvard didn’t, he continued, given its “commitment to addressing the impacts of climate change.”

Fossil fuels are not eternal

According to Margaret Chen, who runs the foundations practice at Cambridge Associates, colleges and universities are finding ways to shift away from traditional energy.

“The thing about the shift away from fossil fuels is that it matters and it’s an ongoing trend,” says Chen.

It’s possible to have a diversified portfolio that’s performing well and doesn’t include fossil fuels, Chen says.

And that, according to Eaton, is an admirable goal that makes moral and fiduciary sense.

“One thing to remember is that foundations are really managed to grow as much as possible over the long term,” he says. “And in the long term, our economy will only thrive as a fossil-free economy.”

That may seem a long way off, but Texas is also preparing for it and taking steps to ensure its land holdings remain useful.

As energy companies continue to pump millions of barrels of oil and gas out of this West Texas land, they’re also realizing it’s a great place to harness wind and solar power. [Copyright 2022 NPR]