Peter Taylor, the UC chief financial officer who preceded the current chief investment officer (the title was changed), spoke to a group at the Reagan Hospital in 2014, shortly after leaving UC.* You can hear his remarks below in response to questions from the audience or look at the transcript. (Note: The transcript was computer-generated with some corrections.)
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*Bio at https://investors.23andme.com/board-member/peter-taylor
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Taylor's remarks at the link below:
Or direct to https://www.youtube.com/watch?v=ZTXbABD-3o4.
Transcript:
Taylor: Yes sir?
Question: there's been a lot of push for a divestment of university funds and things like fossil fuels. We've already gotten rid of tobacco and guns and the governor sort of says well maybe we'll just do coal. And so on, and I'm just wondering whether you'd like to comment on the sort of social role in investing university funds.
Taylor: I do not believe there should be a social role in investing university funds. I believe the fiduciary responsibility of the board of regents, just like it is for the board of foundations, is to maximize returns to drive revenues into supporting the good things that the university does. Look, I ... My mother passed away from lung cancer. I hate tobacco companies. If they go out of business tomorrow, I'll be the happiest person around. But the regents's decision to divest from tobacco is a financial catastrophe. That decision has resulted in half a billion dollars less money today in the retirement system than there would have been had we stayed invested in tobacco. And with all due respect, the decision of the board of regents to divest from tobacco and a number of other institutions... I don't think tobacco companies are any less profitable, any less strong any less - you know - vibrant, than they were years ago when that decision was made then.
So with all due respect, no, I'm not a big fan of fossil fuel divestment because I think it runs contrary to our responsibility to drive improvement in teaching and research. And one other thing I think is important you know. Fossil fuels are much bigger than tobacco. It is about 17 percent of the world's economy is directly or indirectly related to fossil fuels. So if you're suddenly telling your investment staff you can't invest in 17 percent of your options out there, what do you think are going to happen to our returns in the pension system and the endowment. They're going to crater because you you just don't have the options.
Now we're doing very positive things in this regard, and I'll be honest the new chief investment officer we just hired Jagdeep Bachhar from Canada started on April 1st. One of the attractive things when we were going through the search process that I managed for the board was the fact that he had a very good track record investing in sustainable technologies in sorting out those winners in the green space that have actually produced revenue, become real companies. And that was very attractive to the board to say we'd like to be proactive and positive when it comes to sustainability.
But frankly pulling money out of an oil company... It doesn't hurt the oil company frankly. Probably is really great for Chinese investors to come in buy that stock and put money in the bank. You think i'm strongly opinionated on this?
[Laughter]
Well... And it also sends a terrible message to a donor, right? One of the things that regents have got to overcome is to send out the message that they're above and beyond making political decisions with other people's money. And if you're out there trying to get somebody to give you a seven-figure gift on behalf of the university are you going to give it to a bunch of political appointees who will - because somebody has a demonstration in front of their house? You can't. You can't do that. The donor will then be reluctant to say... I'd like to support the university but, you know, are they going to take this hard-earned money that i've made that I want to use to support UCLA and now use it to fight somebody else's political priorities. I don't think that's the right message. To say it makes it real tough when a university just launched a billion dollar campaign.
I could go on and on about this subject, too, but I know it took four minutes just to answer that one.
Question: Following up, does your CFO mentality about these issues go as far as abandoning any moral leadership role that this great university would play? And I just through out as an example the divestiture from South Africa during its apartheid stage. How do you feel about... How would you feel about that: as you just stated or different?
Taylor: Yeah, so for every one of those I could show you a tobacco one where it's had no impact. It is not my job as CFO to impose my moral compass on somebody else. My job is to make sure that the funds necessary to run this place and to allow it to thrive in an era of dramatic cutbacks from the state. And you know when it comes to setting the moral compass for the university, again, is it appropriate to tell patients in this place who are paying the bills, hey, you know some of that money we're gonna... that you're paying for that cancer treatment or for that that open heart surgery, we're gonna take some of that money and we're gonna use it to pursue things that are far afield from anything that impacts you directly for which you're paying a bill.
Question: Do you think the board of regents has the same or kind of the same focus on these issues that the chief financial officer had.
Taylor: I think the board of regents ought to have a singular focus on doing what is in the best long-term interest of the university. And i'm not sure divesting from fossil fuels will drive us in that direction. I don't see how, honestly. You know where the regents have gotten in trouble is when they start playing politics based upon their own personal views. SB 1, SB 2, right? The effort to ban affirmative action. Some would say that was politically motivated. Really put the university a bit of a tailspin for a while. Was that the right thing? Should they have done that decision? You know you can argue this both ways.
I know and let's face it, I met with the students who were advocating the fossil fuel divestment six or seven times over the last year and, you know, they're passionate and I don't doubt the existence of climate change. I don't want something that's going to make a difference... Right, if we're really serious about climate change well why don't we say you can't drive to campus anymore. You have to use public transit. You know instead we put the onus on somebody else instead of telling there's a lot more fossil fuel being created by people driving to and from campus every day than where our investments go. Or we're not willing to take that kind of sacrifice. We're willing to push the sacrifice onto somebody else. Well, if we want to make a moral statement, let's say we're going to do it with our own behavior first and foremost.
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