This article is more than 2 years old

This article is more than 2 years old

More than 100 US universities and colleges have interests offshore where they pay little or no tax and seek to grow their already phenomenal riches away from public scrutiny, the Paradise Papers reveal.

With combined endowments of more than $500bn (£378bn), the leaked documents show universities have become big players in offshore games. In contrast to the stated mission of open discourse espoused by many prestigious seats of higher education, investments are frequently held in secret entities that help them minimize their contribution to the public purse.

Most contentiously, some of the offshore funds are invested in carbon-polluting industries, despite leading US universities playing a key role in the fight against climate change.

In total, 104 US universities and colleges are named in data from the law firm Appleby. They include Ivy League institutions such as Princeton, as well as some of America’s best-known state schools such as Rutgers in New Jersey and Ohio State.

Four of the top 10 schools by endowment are in the files: Columbia, Princeton, Stanford and the University of Pennsylvania. Between them, they have reserves of $73.7bn.

Appleby’s files list 45 offshore concerns, including private equity and hedge funds mainly in Bermuda and the Cayman Islands, as recipients.

Typical of the entries is Northeastern University in Boston, which prides itself on being at the forefront of sustainability. In April, it invited Elizabeth Warren, the Democratic senator from Massachusetts, to open its $225m Interdisciplinary Science and Engineering Complex (ISEC).

The building has sun-shading aluminium fins that lead into a bright six-storey atrium dominated by a white spiral staircase.

Northeastern describes ISEC as a “research village” where students can build a humanoid robot named Valkyrie with the help of Nasa, develop cybersecurity tools to protect data and use infrared rays to destroy cancer cells.

Facebook Twitter Pinterest The Interdisciplinary Science and Engineering Complex at Northeastern University in Boston. Photograph: Rick Friedman/The Guardian

But despite the complex’s ideals and goals, which include seeking solutions to rising sea levels and pollution, Northeastern is one of 12 prominent US universities and colleges named in the Paradise Papers as investors in EnCap Energy Capital Fund IX-C, a hedge fund based in the Cayman Islands.

The fund acts as a feeder to a subsidiary based in Houston, Texas, of EnCap Investments, one of the world’s largest private equity companies, which describes itself as the “leading provider of venture capital to independent oil and gas companies”.

Since 1988, the company has pumped almost $20bn into oil and shale gas exploration and production, with investments in Utica shale in Ohio and Pennsylvania, oil in the Permian Basin of Texas, and Haynesville and Bossier shale in western Louisiana.

Academic institutions that have put money into EnCap include state schools such as Alabama, Rutgers and Washington State (WSU), and private institutions such as Syracuse University and Reed College.

Northeastern’s secret investment in an aggressive financial backer of carbon-emitting industries came as a surprise to members of DivestNU, a coalition of student groups campaigning for a fossil-fuel-free campus.

James DeCunzo, 19, a DivestNU organizer, said: “The university’s motto is ‘light, truth and virtue’.”

“Now we learn that the leadership team has been operating in darkness, violating their own green principles by investing in oil and gas, and going offshore to pay less tax.”

DivestNU has spent the past four years trying to persuade the university to reveal information about its fossil fuel investments, with little success. In July 2016, Northeastern’s senior leadership team announced that it would invest $25m of its endowment in clean energy and renewables, boasting that the institution was a “leader in sustainability practices”.

But in the same breath the administration, whose vice-chair of the board of trustees, Ed Galante, is a former senior vice-president of ExxonMobil, declared that it was opposed to divestment. “We have deliberately chosen to invest, not divest,” it said.

The students of DivestNU see Northeastern’s investment in EnCap’s offshore hedge fund as confirmation of a critical flaw in its approach. DeCunzo said: “Northeastern has an opportunity to be a leader in how it uses its endowment for impactful, socially responsible investments. But the way things are now, the values of our investments are out of alignment with the values of our teaching.”

Facebook Twitter Pinterest James DeCunzo, a third-year student at Northeastern University and campaigner against fossil fuels. Photograph: Rick Friedman/The Guardian

As of June 2016, Northeastern’s endowment was $702m, about average for a major US school. The Guardian asked the university to disclose how much of this reserve was invested offshore, but it declined to do so, saying only that the investments were “limited”.

In a statement, the university said all of its investments were “managed to maximize the opportunities for furthering our educational and research mission. It is important that we diversify our portfolio to maximize the return on these investments within the strict guidelines of the law”.

It is impossible to say how many tax havens Northeastern uses or how much it invests in the Cayman Islands offshoot of EnCap. However, given that many hedge funds are based offshore it is likely that some of the $320m it has invested in private equity, hedge funds and alternative investments is held in tax havens.

At the University of Pittsburgh, another investor in EnCap in the Cayman Islands, students have learned that about one-third of its $3.5bn endowment is directly invested, of which $26m has gone into fossil fuel industries.

Anaïs Peterson of the Fossil Free Pitt Coalition said: “We are concerned about the lack of transparency, as two-thirds of the endowment is just a mystery to us.”

“We are suspicious about where that huge segment of the endowment is going.”

Universities’ collective move offshore has been propelled by huge recent growth in their endowments, with the latest figures from Nacubo, the association of academic business officers, showing that the leading 805 schools in the US amassed an eye-watering $515bn in 2016.

As reserves have swelled, cash has increasingly been directed towards “alternative strategies” such as hedge funds, venture capital and private equity, many of which exist offshore. These made up 52% in 2016 – equivalent to about $268bn – up from 20% in 2002.



Tax experts believe the amount invested offshore is substantial given the tax advantages of putting alternative investments in tax-exempt jurisdictions such as Bermuda. A study by Norman Silber and John Wei of Yale estimates that offshore sums may be greater than $100bn.

Facebook Twitter Pinterest Boats moored in Hamilton Harbour in Bermuda. Photograph: Alamy

Silber, a senior research scholar at Yale, said: “The riskiness of investments is no longer required to be transparent. This is a problem for the public, but it’s also a problem for boards of directors, as even they are being kept in the dark.”

Under the current US tax structure, schools have an incentive to move offshore because it allows them legally to avoid paying federal tax on hedge fund and private equity investments.

Universities increasingly seek to shield themselves from the tax on unrelated business income by funneling their endowment money through so-called “blocker corporations”, which pay no tax if they are set up offshore.

There are several offshore blocker corporations with university partners named in the Paradise Papers. Among them is EnCap Energy Capital Fund IX-C, which is mentioned in Appleby’s files as “treated as a corporation for US income tax purposes – blocker corporation”.

Other blockers to be found among the millions of documents in the Paradise Papers include H&F Investors Blocker in Bermuda. Until it was dissolved in 2011, it had Columbia, Dartmouth, Johns Hopkins, Stanford and the University of Southern California (USC) among its partners.

In the Cayman Islands, Genstar Capital Partners V HV, a subsidiary of a company specializing in buyouts, services Colgate University, Dartmouth, Stanford and Gothic Corporation, which provides financial support to Duke University in Durham, North Carolina.

The Guardian contacted all the universities and colleges named in this piece. Other than Northeastern, only four responded. None of the four – Dartmouth, Stanford, USC and WSU – would disclose how much money they had offshore.

Dartmouth said it invested in offshore funds at the choice of investment managers, but did not avoid taxes. The college reports all taxable income and pays the same US taxes as if the funds were held domestically, it said.

Stanford said that as a charitable institution, its income from the endowment was essential to support research and provide financial assistance to students unable to afford its fees. As for the offshore portion, “Stanford looks to minimize its tax burden within the limits set by law”, it said.

USC said the now inactive Bermuda blocker it invested in was “not an opaque investment” and insisted it included all its investments in university tax filings. WSU pointed out that its endowment was managed by a legally separate foundation independently responsible for all investment decisions.

The proliferation of offshore endowment investments that pay minimal or no tax on their returns presents students at many of the leading US schools with a dilemma. On the one hand, they know they personally benefit from the profits that flow on to their campuses, but on the other, they have serious ethical qualms.

Alissa Zimmer, 22, one of the founding members of DivestNU, receives about $40,000 a year in subsidies to her tuition fees, spent four months largely tuition-fee-free on a study program in Rio de Janeiro, and has access to state-of-the-art facilities such as ISEC.

When challenged by other students as to why she is protesting over Northeastern’s policy while accepting financial aid, Zimmer said she replies: “Sure, I’m benefiting from Northeastern and its wealth, but that’s not a reason to stay quiet.

“It’s a reason to speak out, to improve the university for those who come after me.”