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Monday, August 16, 2010

Harvard Confirms, They DID NOT Divest its Israel Holdings.

Last night the Israeli business news website,Globes announced that Harvard had sold off its stock in Israeli-owned companies. Many bloggers, myself included assumed that the many forces within Harvard pushing for the school to divest itself of its Israeli holdings had won the day.

Within an hour of posting the story sources began to inform me that Harvard's move had nothing to do with divestment.  The Post was corrected. This morning  Harvard has issued a statement confirming that the sell off NOT a Divestment issue.

Israel had been "Promoted" in may and is no longer considered an emerging economy. This was simply a technical adjustment by Harvard Asset Management - to adjust for the fact that Israel was no longer classified by MSCI as a developing economy.( index maker MSCI moved Israel from emerging country to developed country back in May). The sell-off was just part of a re-balancing between their emerging economy to their developing economy accounts.

John Longbrake, Sr. Communications manager at the Harvard Management Company emailed the following  confirming that it was not a divestment.
the Management Company's most recent S.E.C. filing details changes in holdings, as is routine, but no change in policy. The University has not divested from Israel. Israel was moved from the MSCI, our benchmark in emerging markets, to the EAFE index in May due to its successful growth. Our emerging markets holdings were rebalanced accordingly. We have holdings in developed markets, including Israel, through outside managers in commingled accounts and indexes, which are not reported in the filing in question".
It is not Organization for Economic Co-operation and Development (OECD)  membership that determines whether fund managers and other instiutions invest in one market or another, it is the MSCI index, which serves as a benchmark for weighting a portfolio of securities investments. The MSCI reclassified Israel as a developed market in June (second quarter):

This was a major and heavily reported event in Israeli financial markets. In addition, the Financial Times (whose classifications are less widely used) did the same last year.

OECD membership is helpful for other reasons, but it wouldn't influence an institutional investor like the Harvard endowment. Note that Turkey is a long-time OECD member but is still considered a developing market.

Why is it important to get out the correct information? First of all the divestment story is not true.  Even more important is that the Divestment forces should not be motivated by a "big win" they did not get. The truth is that this story is tribute to the strength of the Israeli Economy (its now considered a developed economy), and the failure of those anti-Israel forces to damage the Israeli economy via boycott.

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John Bragg said...

My first thought, when it was clear that it was financial, not political:

"Wait--if dumping Isreali and buying Turkish is a GOOD financial decision, Israel is in a new kind of trouble."

Moving from emerging to developed, OTOH, is a Good Thing.

Daniel said...

I see. When Israel was reclassified as a developed nation, Harvard adjusted its balance between developing and developed economies, not by a balanced reduction from the latter to the former, not by a thoughtful reduction of selected investments in developed countries but by disposal of every single one of its investments in Israel.

Similarly supporters of Israel might decide to react to present hard times not by proportionally cutting all their charitable contributions, but simply by cutting out all contributions to Harvard.