Divestment by US universities could hit Israel hard

Anti-Israel encampment at Brown credit: Anibal Martel Reuters
Anti-Israel encampment at Brown credit: Anibal Martel Reuters

Some top US universities have agreed with pro-Palestinian protestors to discuss divestment after the summer. "Globes" examines the likelihood of such a policy.

Most of the anti-Israel protest encampments on US campuses have already been dismantled for the summer vacation. In some cases this only happened after lengthy talks between the students and college management, in which some of the conditions set by the protesters were met. At prestigious universities such as Harvard, Johns Hopkins, Brown and Minnesota, the administrations have pledged to listen to the students' arguments on investments in Israel, and discuss the matter.

What will happen if the investments are indeed withdrawn? According to experts "Globes" spoke to, this could have significant consequences for the Israeli economy, and especially for the tech industry. At the same time, they say, it will not be so easy for universities to do so.

Agreed to discuss the demaqnds

The top US universities hold large investment funds worth billions of dollars each, which invest the money of employees and pensioners as well as funds accumulated in the past in a similar way to private equity funds and US hedge funds. Some of the funds are invested in shares of foreign companies, and usually about 20% is invested in what is known as "alternative investments" - a category that includes investments in real estate, commodities, and also private capital funds and venture capital funds, many of which invest in Israel.

The students protesting against Israel have achieved successes so far. At Harvard University, recently appointed president Alan Garber, who is Jewish, has set up a special committee that drafted a letter explaining that it does not rule out a discussion on divestment from Israel. This, "As in the past it divested from fossil fuels and South Africa", some of the university's leaders wrote in a special article for the New York Times.

In addition, the management of Johns Hopkins University said that it will "Examine the main questions of the protestors regarding divestment." University of Washington management decided to meet with representatives of the protest "on divestment demands", as has management at Rutgers Minnesota and Wisconsin universities. In Canada, on campuses like Toronto Metropolitan (TMU) and McMaster, an important university in Hamilton, Ontario, divestment is also on the agenda.

At two US universities, Occidental College in Los Angeles and Brown University, Rhode Island decisions have been taken for a vote on the issue of divesting from Israel. Bown president Christina Paxson even spoke enthusiastically about the discussion that will take place in October as part of her commitment "to provide an answer to the members of the community," on the matter of divesting from Israel. The University of California has taken a decision to vote on a proposal for divestment in September.

$200 million from Harvard

University investment bodies, known as endowment funds, invest a percentage of their managed capital in Israel. Zeev Holtzman, founder of the Israeli venture capital Giza Fund and former head of the Association of Venture Capital Funds in Israel, estimates that they are responsible for between 2%-3% of the total foreign capital that flows into Israeli tech. According to the 2020 estimate of the Crimson website, Harvard's news bulletin written by students, about $200 million is invested on behalf of the university directly in Israeli companies.

Protesters at the University of Minnesota claim that the university owns assets totaling $2.4 million - 0.11% of its entire investment portfolio - in investments in Israeli companies. These funds are invested in companies that include chip companies Nova and Camtek, and cybersecurity company Check Point, and even in the Tel Aviv Stock Exchange. According to Holtzman, any decision made by the universities regarding investment in Israeli companies would affect the entire market, "Because the universities do not only represent large investment entities but claim to be a moral compass. A decision against Israel that is published could cause heavy damage."

However, the investment committees that will make decisions on Israel face quite a few challenges. First, the investments are often dispersed among several administrative bodies, which may challenge the decision and make it difficult. The main difficulty stems from the fact that long-term investments involve a commitment that cannot be easily broken.

Another obstacle is the extensive legislation passed by many states in the US against boycotting Israel, as part of the fight against BDS organizations, including in Minnesota, Illinois, New York and California. "Decisions to withdraw investments may create significant legal risks for the universities," says Dr. Roy Schondorf, a former deputy attorney general, and currently a partner at Herzog Fox Neeman law firm. He added, even a university located in a state where the law has not been passed, will be indirectly affected by it, since if it decides to boycott Israel, it will not be able to conclude contracts in a state where the law does exist. "Universities that decide to divest may face sanctions and be perceived as violating fiduciary duties."

Prof. Gerald Steinberg, Emeritus Prof. of Political Studies at Bar-Ilan University and founder and president of NGO Monitor, says "A divestment policy aimed at Israeli businesses may have a significant economic impact. Campaigns to divest launched at the forum of non-governmental organizations, led by Human Rights Watch and Amnesty International, at the infamous Durban conference, ultimately did not have a significant economic impact on Israel."

Risking lawsuits

Prof. Anat Alon-Beck an expert in corporate law at Case Western Reserve University School of Law tells "Globes," "A university, and in fact any US body that chooses to boycott Israeli companies, will also have to prepare itself in the event for a lawsuit. The lawsuits against boycotting organizations can be conducted in state courts as well as in a federal court. There are organizations that will try, so to speak, to walk between the cracks and try to boycott only companies that are related to the defense industries allegedly involved in the war in Gaza, but this distinction is also misleading. The tech industry in Israel and the US always began in the defense industries, and they rely on them."

She adds, "Whoever does not see the fact that this is a war between China and Russia against technological progress, is blind. And whoever tries to fight Israeli companies because of an alleged violation of human rights, may open himself up to many lawsuits, since the US has not declared Israel as a country that violates the human rights."

Published by Globes, Israel business news - en.globes.co.il - on June 3, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.

Anti-Israel encampment at Brown credit: Anibal Martel Reuters
Anti-Israel encampment at Brown credit: Anibal Martel Reuters
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