The universities of Oxford and Cambridge, and nearly half of all Oxbridge colleges, have secretly invested tens of millions of pounds in offshore funds, including in a joint venture to develop oil exploration and deep-sea drilling, leaked documents from the Paradise Papers reveal.
The files show that both universities have committed significant funds to multibillion-dollar private equity partnerships based in the Cayman Islands, a tax haven popular with American and British hedge funds.
The money is routed through what are known as “blocker” corporations. This arrangement, typically done in partnership with a fund based in the US state of Delaware, means the universities can avoid or “block” a US tax on hedge fund investments. They receive dividends tax-free.
Papers marked “trade secret and confidential” show that in 2006 Oxford invested $3.4m (£2.6m) in a Guernsey-based private equity firm, Coller International. The money was put in two separate funds, made up of cash from the university itself and from individual colleges. Cambridge invested $1.7m in the same scheme.
Prem Sikka, an emeritus professor in accounting at the University of Essex, questioned the ethics of universities sending their endowments offshore. He said: “All the Caymans offer is secrecy and tax avoidance. There is nothing else there. It’s not as if this is a place actively engaged in advancing science, research or human knowledge.”
Sikka said universities needed to be more transparent about their investment decisions since they were public institutions that received public money, including from the EU. “We need to know what they are doing with the cash. There are issues of corporate social responsibility.”
One of the two funds – Coller International Partners V – was the largest of its kind worldwide. It eventually attracted $4.8bn in capital from almost 200 public institutions.
The fund’s biggest investment, of $1bn, was with Royal Dutch Shell, the Anglo-Dutch oil and gas company. A joint venture, the Shell Technology Ventures Fund, in turn invested in “production and exploration” technologies. One Shell business partner that received Oxbridge funds was Xtreme Coil. The firm specialises in “innovative and efficient drilling rigs” able to “reach hydrocarbons in deeper horizons”.
One of the largest contributors to the fossil-fuel-linked partnership was the UK university sector’s main pension scheme, the Universities Superannuation Scheme (USS), with $88m invested. In July, the USS admitted it faced a deficit of £17.5bn, the biggest of any British retirement fund.
The Paradise Papers revelations are likely to increase pressure on Cambridge and Oxford to divest fully from fossil fuels. Last month, a group of academics at Cambridge led by Rowan Williams, the former archbishop of Canterbury, called for an end to carbon-based investments by the university.
Oxford has faced similar calls. In 2015, it announced it was exiting from coal and tar sands following a review and discussions with the student union but it continues to invest in other fossil fuels. Cambridge’s £6.3bn educational endowment fund is the biggest in Europe. Oxford’s fund stands at more than £5bn, including college funds.
To date there have been few public details as to how these endowments have been managed, invested and spent. In 2016, hundreds of academics from Cambridge and Oxford signed letters calling on the universities to exit from hydrocarbons and to adopt an “evidence-based, morally sound investment policy that serves the needs of the future”.
There have been similar moves on other campuses. In 2015, Edinburgh University agreed to divest from oil and gas after a student-led campaign and a 10-day occupation of the university’s finance building.
Cambridge said the university and colleges were charities, adding: “This means there is normally no tax to pay.”
“A highly reputable adviser” managed funds and made independent decisions about specific investments, it said.
On fossil fuels, the university said its council had set up a divestment working group in May 2016 that was “seeking views from a wide range of organisations and individuals”. It was holding town hall meetings open to staff and students. Cambridge had “negligible” exposure to more polluting fossil fuel industries, it said.
Oxford said offshore investments were “commonly used in the investment industry, including higher education endowments globally”. There was “robust oversight” of its holdings. The university carried out a “broad consultation” in 2014 and had only “very low exposure to the broader energy sector”.
The leaked papers show 29 Oxbridge colleges have invested in offshore partnerships, with most of these participating in the university-run, oil-and-gas-linked fund managed by Coller. A few of the wealthier colleges have invested in their own right. They are led by Trinity College, Cambridge, the university’s richest college, which committed $13m via two separate A and B funds.
Other Cambridge colleges that invested in fossil fuels include Clare, Downing, Gonville & Caius, Jesus, Murray Edwards (formerly known as New Hall), Newnham, Pembroke, St Catharine’s, St John’s and Trinity Hall. The Oxford list includes All Souls, Christ Church, Corpus Christi, Exeter, Lincoln, Magdalen, Merton, Nuffield, Somerville, St Antony’s, St Catherine’s, Queen’s, Trinity, University, Wolfson and Worcester.
Somerville said it had divested from the fund in 2012. Jonathan Bate, provost of Worcester, said his college had invested £1.35m, managed by an outside company. Like other colleges, its portfolio was now in the hands of the university’s main endowment management scheme, OUEM.
Bate added: “Since the endowment is held at arm’s length in OUEM, Worcester has no direct investments – onshore, offshore, in cyberspace, or anywhere else.”
Some better-off colleges have put money into Dover Street, another “blocker” corporation managed by a Boston-based private equity firm, HarbourVest. They are Jesus and Magdalen colleges in Oxford, each with $1m, and a Cambridge University endowment fund, the Gates Cambridge Trust, set up by Bill Gates, with $4.5m.
The fund is in the Cayman Islands. It has invested indirectly in the retailer BrightHouse, which has been accused of selling electrical goods to people with learning disabilities at high interest rates. Last month, the Financial Conduct Authority ordered the company to compensate nearly 250,000 customers. Jesus said it was reviewing its investment. It was made “without reference” to the fund’s limited partners.
One of them was the Queen, whose Duchy of Lancaster estate invested £7.5m in the same fund. The revelation that the Queen has offshore investments in BrightHouse caused embarrassment and prompted criticism this week of her investment advisers. Brasenose, David Cameron’s old college, invests in a similar Dover Street scheme.
OUEM manages assets of £2.8bn including cash from 23 colleges. Its latest 44-page prospectus does not mention the word “offshore”.
But the leaked files suggest that in 2014 the Oxford endowment scheme invested $40m in a US-managed private equity fund based in the Cayman Islands. The fund, Sycamore Partners, closed in June 2014 with a total investment of $2.5bn. It attracted pledges from several leading US universities including Columbia and California. The cash was invested in US retail.
The Coller International Fund V linked to Royal Dutch Shell was the biggest of its kind at the time. The private equity investor Jeremy Coller founded the firm in 1990. It specialises in the “secondary” private equity markets. This means the buying and selling of pre-existing commitments to private equity funds.
Several UK councils invested funds in the Cayman Islands scheme. They include South Tyneside council’s pension fund ($30m), Hampshire county council’s pension scheme ($10m) and Nottingham county council ($18m). UK firms with multimillion-pound pension investments include Barclays, British Airways, BP and BAE Systems.
The councils said they paid all appropriate taxes. Hampshire said it had a “fiduciary duty by law … to achieve the best possible financial return”.
One reason that higher education institutions invest in offshore hedge funds is to avoid paying taxes on their earnings. University endowments are tax-exempt but if an institution invests in a debt-financed vehicle such as a hedge fund, it has to pay a US “unrelated business income tax” – or UBTI – on its earnings.
The leaked documents from the Paradise Papers include US tax forms, already filled in and sent by Coller to partners in order to avoid UBTI taxes. The W-81MY forms are titled “Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain US Branches for United States Tax Withholding”.
- This article was amended on 8 November 2017. An earlier version wrongly referred to St Andrews rather than Edinburgh University. This has been corrected.