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Capping the Well

For more than a century, the University of California has maintained extensive ties to the fossil fuel industry. A coalition of students, alumni, and climate scientists is trying to sever those bonds.

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In Pennsylvania, where the natural gas industry is booming, corporations like Halliburton, Exxon Mobil, and Noble Energy drill to depths of 7,000 feet before turning their bits sideways, cutting horizontal lines into the Marcellus Shale formation. By fracking the deeply buried layers of hydrocarbon-rich rock, they force out natural gas. Their techniques have re-opened dormant regions of the country to a new era of mining, yielding billions of profits in the process. Fossil fuel company stock prices have shot upward as a result. That's why the University of California's investments office has spent the last few years buying and selling stocks in these companies. The UC's financial managers want to harvest the value they've gained for the university's endowment, operating funds, and the schools' pension system.

Although the UC doesn't readily reveal the stocks it owns, the ten-campus system, like hedge funds and large private equity firms that hold more than $100 million of stock in publicly traded companies, must file an institutional investor's report with the Securities and Exchange Commission each year. Last month, in its annual report, the UC disclosed that it directly owns stock in eight fossil fuel companies, including some of the energy giants cutting holes into the Marcellus Shale: Halliburton, Exxon, and Noble. In fact, the UC's $7 million stake in Halliburton is the most valuable single direct stock that it holds.

The UC system divides its investments among multiple funds. These include the Short Term Investment Pool (STIP) through which the UC invests mostly in US Treasury Bonds. Treasuries, which are practically as good as cash, can be sold when it's time to make payroll or cut checks to vendors. Then there's the TRIP, an investment pool that is kind of like the STIP, and in which the UC's cash gets turned into securities (corporate stocks and bonds) that have less "liquidity" and more "volatility," as they say in the financial business. Less liquidity means that these investments are harder to sell on a moment's notice, but theoretically come with higher returns.

The UC uses cash contributed to its UC Retirement Plan and the UC Retirement Savings Program to buy up all kinds of securities, including stocks and bonds of corporations, government debt, mortgage debt, real estate, and stakes in private equity funds and hedge funds. The UC aims to invest in companies and commodities that grow in value well above the rate of inflation in order to pay out pensions to faculty, staff, and administrators who make contributions to the fund.

Similarly, the General Endowment Pool, the account into which the regents pour most gifts to the university, invests in all kinds of securities. Finally, each campus maintains its own independent endowment that also invests in stocks and bonds of corporations, private equity funds, hedge funds, real estate, currencies, and more.

Through this maze of funds, which altogether total about $91 billion, the UC owns stakes in hundreds of oil, natural gas, and coal companies. The UC's General Endowment Pool includes bonds from corporations that drill, transport, refine, and burn fossil fuels all over the planet. The UC, for example, collects lucrative 9.1-percent interest payments from the state-owned oil company of Kazakhstan — KazMunayGas. The UC also has a multimillion-dollar investment in Naftogaz, the Ukranian national oil and natural gas monopoly. The UC endowment also owns interest-yielding bonds in Gazprom, a Russian corporation that extracts and sells natural gas in Europe. These European and Central Asian energy investments are supplemented by interest payments on corporate bonds that the UC collects from Pemex, Petróleos de Venezuela, and Petrobras, the behemoth oil corporations of Mexico, Venezuela, and Brazil, respectively.

Through private equity investments, the UC has financed companies that drill, pipe, and refine in all of North America's major oil and natural gas fields. For example, in 2008, the UC committed $20 million to an investment called the Energy Special Situations Fund II, LP. Essentially a giant pot of money managed by a small team of professional investors in Houston, the Energy Special Situations Fund II bought stock in companies extracting and transporting oil and natural gas from the Gulf of Mexico to the Rocky Mountains. The fund has earned the UC a 27-percent return, according to a recent disclosure by the board of regents.

The UC Berkeley Foundation, the independent endowment for UC Berkeley, also holds fossil fuel investments, although it contends that it has no direct control over them. "The UC Berkeley Foundation does not directly hold stock in any publicly traded fossil fuel company," wrote Claire Holmes, UC Berkeley's associate vice chancellor for communications, in an email to me. "The Foundation's portfolio is constructed primarily using third-party specialist investment managers running commingled vehicles, which can and do hold varying amounts of such securities."

I obtained a copy of the Berkeley Foundation's investments through a Public Records Act request. Much of the foundation's $1.24 billion in assets are invested through private equity and hedge funds, providing few clues as to where the money ultimately ends up. Private equity funds and hedge funds, often incorporated as limited partnerships and LLCs in offshore tax and secrecy havens such as the Cayman Islands, rarely have to disclose to the public what companies they invest in. But several private equity funds to which the Berkeley Foundation has committed capital are primarily in the business of financing fossil fuel extraction. EV Energy Partners, one of these Berkeley Foundation investments, describes on its website the fund in which the UC holds a stake as investing in "the upstream sector of the oil and natural gas industry in North America, leveraging the company's existing basin positions." That means the UC's money was used to buy stakes in oil and natural gas companies doing significant drilling.

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