Pitt and CMU have grown wealthier through private, offshore investments. We followed the money.

Carnegie Mellon University and the University of Pittsburgh are two of the nation’s wealthiest schools. To grow richer, the large nonprofits have made skyrocketing investments in private equity funds and hedge funds, including those tied to the polluting fossil fuel industry and established in offshore tax havens. 

These investments are less transparent, meaning that students, faculty and the rest of the public are less able to track where the universities are putting their money — particularly as students urge them to sever their financial ties to fossil fuels. Both universities recently stopped identifying investments in federal filings, leaving the public more in the dark.

“Broader constituencies — faculties, student bodies, prospective students — all of them, it seems to me, have a legitimate interest in knowing just how socially responsible the investing that takes place is,” said Norman Silber, a law professor at Hofstra University who has written about the offshore tactics of nonprofits. 

Prominent universities have prioritized these investments to balloon their endowments, which are funds that support scholarships, research and faculty positions. Over roughly the last decade, CMU’s investments nearly quadrupled to about $2 billion while its endowment almost tripled to more than $3.1 billion, financial records show. Pitt’s investments grew to at least $1.7 billion, and its endowment swelled to about $5.5 billion. 

Private equity funds and hedge funds are invested on behalf of universities and other investors. These investments can be more lucrative than others. But the funds aren’t required to publicly disclose what they invest in, so there are few specifics on where the money goes. Going offshore adds a layer of murkiness, as universities can report fewer details about their investments and more easily obscure deals that draw the ire of students.

As well as stifling transparency, offshore investments can allow universities to legally avoid paying some federal taxes. Pitt and CMU pay little already due to their nonprofit status. 

CMU’s investments in Central America and the Caribbean nearly quadrupled from 2012 to 2022, to more than $1 billion. The Cayman Islands, the Bahamas and Panama are considered popular tax havens. Pitt did not report any investments in the region during that period but has made offshore commitments. 

Spokesperson Jared Stonesifer wrote in a statement that Pitt’s investments in funds held in Central America and the Caribbean are comparable to other university endowments. He added that endowment investments are meant to support students and faculty and “are often — and legally — made through funds located outside of the United States.”

Pitt’s and CMU’s portfolios have lately become more opaque, as both institutions no longer identify funds on reports filed with the IRS. 

The previously reported names sometimes provided a glimpse into the funds’ potential locations or the industries they support. As of about five years ago, CMU was invested in “Blackstone Capital Partners (Cayman) V” — indicating a connection to the Cayman Islands. As of about seven years ago, Pitt was invested in “Natural Gas Partners VII.” 

“Should the endowment itself be a reflection of the mission of the university?” said Jennifer Bird-Pollan, a law professor at the University of Kentucky. “I think we are allowed to ask moral questions about our financial investments. And we probably should when we’re talking about this kind of money.”

In November 2017, news outlets around the world covered the leak of millions of documents largely from Appleby, a law firm then based in Bermuda. Dubbed the Paradise Papers, the leak revealed that Queen Elizabeth II and other elites used offshore companies to reduce their tax payments and grow their riches. 

The papers showed that many prominent universities, including Pitt and CMU, were taking the same approach. Pitt was named an investor in two funds based in the Cayman Islands, both funneled into the fossil fuel industry. CMU was named an investor in a Bermuda-based fund with unclear industry ties. 

Both universities now refer to each fund only as a “partner” or “partnership,” a practice that began at Pitt after June 2017 and at CMU about two years later. Many similarly prominent universities did the same in the most recent fiscal year. A few didn’t, including the Massachusetts Institute of Technology and New York University, which both disclosed investments in funds tied to the fossil fuel industry.

Brian Galle, a law professor at Georgetown University who has served as a fellow at the IRS and the Securities and Exchange Commission, said the shift at Pitt and CMU “makes public oversight more difficult.”

“I think that a school that was trying to be above board would be reporting as much detail as it could,” he added. “I think it should be a source of embarrassment if, when you’re called to account for doing morally questionable things, your response is, instead of changing them, to hide.”

Stonesifer, at Pitt, wrote that “Anonymizing the names of specific funds in the Form 990-T is a common practice used by many institutions and was entirely unrelated to the release of any public reporting.” He added that an independent tax advisory firm reviews the university’s filings prior to their submission to the IRS.

A spokesperson for CMU did not provide responses to repeated requests for comment.

Where are the universities investing?

Unlike individual stock investments in the public market, which offer minimal control and direct financial benefit, private equity investments provide fund managers with direct influence over company operations and decision-making. The funds are exclusive investment pools for wealthy institutions and investors — who must often remain invested for up to 10 years.

Hedge funds are also pooled investments that are largely available only to wealthy investors, but they seek short-term profits and are riskier. 

Although the schools have withheld details about their latest investments in private equity funds and hedge funds, PublicSource analyzed those that Pitt and CMU most recently identified to the IRS. Some may still be held by the universities, given the long-term nature of private equity investments. 

Pitt last named its investments in the fiscal year ending June 2017. Of the 108 funds listed then, at least 18% supported the fossil fuel industry. They included three from NGP Energy Capital Management, which has a current portfolio of at least 15 companies focused on oil and gas acquisition and development; and four from EnCap Investments, once described as the “leading provider of venture capital to independent oil and gas companies.”

The university also invested in a fund from Rice Midstream Partners, which merged about a year later with a limited partnership formed by the EQT Corporation. Headquartered in Pittsburgh, EQT bills itself as “the largest producer of natural gas in the United States.” 

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The amount of money that the universities put toward each of the funds was not disclosed in the filings, but such investments frequently require minimum contributions of hundreds of thousands or millions of dollars. Three of the EnCap funds Pitt contributed to collectively gathered $12.5 billion from investors.

Spokespeople for Pitt and CMU did not confirm whether the universities remain invested in the funds and did not detail the funds the universities are currently invested in. Pitt has said that it plans for its private investments in fossil fuels to cease by the end of 2035.

Students protest fossil fuel investments

Fossil fuels are the leading contributor to global climate change. Students at both universities have urged their institutions to pull their money out of the industry. 

The Fossil Free Pitt Coalition, founded a decade ago, is perhaps the most ardent advocate of divestment. Members have held multiple sit-ins at the Cathedral of Learning, faced conduct hearings for disrupting a board meeting and, in 2019, won a spot in student government after campaigning on the issue. In that election, more than 2,400 students voted in a referendum on divestment; 91% said the university should divest. 

“I don’t think my university should be supporting in any way, or funding, the institutions that are causing the climate and ecological crises. And I think university divestment is a really effective way to push for change,” said Thomas Allen, a junior at Pitt and member of the coalition, in an interview. 

Pitt said in February 2021 that it expects to divest from private fossil fuel investments by the end of 2035. At the time, a committee of trustees reported that the share of the endowment invested in fossil fuels had already decreased from 10% to 5.8% over the last five years and that the university could not immediately sell its remaining private holdings “without expecting significant financial loss.” The coalition had demanded immediate divestment.

The endowment’s share of fossil fuel investments increased a year later, to 8.1%, according to a report the university issued in April. The figure includes private and public investments. The university maintains that it has not made new commitments to fossil fuel funds in more than three years and partly attributed the recent growth to changes in the market value of fossil fuel companies.

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The Fossil Free Pitt Coalition wants the university to fully divest within five years and share what it would cost to sell its private investments on an accelerated timeline, Allen said. “It’s something that universities can do. It’s something that student protesters really can have an impact on.”

In March 2022, a handful of CMU students signed a petition calling for their university to divest. Chief Investment Officer Charles Kennedy told The Tartan student newspaper at the time that, “The university does not have a blanket fossil fuels divestment policy, nor does it have plans to pursue one.” 

A spokesperson for CMU did not confirm whether that characterization remains accurate. 

Offshore investments add a layer of murkiness

Many prominent universities have turned to hedge funds to grow their endowments. The funds that nonprofits select are often located offshore for tax purposes, according to Samuel Brunson, a law professor at Loyola University Chicago. 

Brunson said that CMU’s more than $1 billion in Central America and the Caribbean likely reflects investments in offshore “blocker corporations.” Nonprofit universities are required to pay taxes on a portion of the profits they earn from investing in hedge funds that borrow money, but making investments through blocker corporations shields them from that tax liability. 

The use of blocker corporations is wholly legal, but some experts say it reduces the transparency of the universities’ investments and chips away at tax-funded programs that serve the public. Others say the practice isn’t dubious because of its acceptance by the IRS. 

Brunson said he doesn’t believe that federal law should effectively encourage universities and other nonprofits to funnel money into tax havens, but he doesn’t blame these institutions for taking advantage of a legal practice. 

“My policy issue isn’t so much with universities taking advantage of this, but it’s with this being the blueprint that we’ve given them,” he said.

Students call for more transparency while activism fizzles

It’s been about two years since CMU students and faculty petitioned for the university to divest from fossil fuels, arguing that such a commitment would “send a message to all higher education institutions that climate change is an issue that needs to be addressed.”

The campaign was the third that students had launched on campus in a decade, the petition states. There hasn’t been a similar push since. “I think the lack of response or acknowledgement has discouraged some members,” said Harper Zondlak, a senior and co-president of the student organization Sustainable Earth, which participated in the 2022 effort.

Members of the club still believe the university should divest — and divulge more information about the endowment’s connections to fossil fuels. Senior Katie Hart, co-president, said it is “impossible” to find specifics. 

The university says “that sustainability is a really important part of the school’s mission, and,” Hart said, “investing in these kinds of companies that are polluting our environment is definitely not in line with that.”

“It feels like they have the power to be a leading force in sustainability,” Zondlak added. “I wish that their investments would actually be investing in our future versus fossil fuels.”

Emma Folts covers higher education at PublicSource, in partnership with Open Campus. She can be reached at emma@publicsource.org.

This story was fact-checked by Elizabeth Szeto.

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