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Behind SSMU’s investment gridlock

The upcoming Nov. 13 special General Assembly (GA) will seek to address issues that could not be settled during the October GA due to its failure to meet quorum. One of these issues will be to ratify appointments to SSMU’s Board of Directors (BoD).

Without a BoD, the Students’ Society of McGill University (SSMU) is unable to purchase stocks to add to its collection of investments—worth approximately $2.65 million. This means SSMU cannot add potentially lucrative investments to their portfolio, which hinders its ability to generate revenue.

The portfolio is currently managed by Lester Asset Management (LAM), a Montreal-based portfolio management firm owned and co-managed by three individuals, including McGill Management professor Ken Lester.

The National Bank is LAM’s custodian bank, which means that they are responsible for safeguarding SSMU’s portfolio. National Bank can effectively prevent LAM—and by proxy SSMU—from ordering new purchases on stocks or bonds until required paperwork, such as corporate resolutions voted at SSMU Council or General Assemblies (GAs), are updated. The forms are related to SSMU’s corporate resolutions, which detail SSMU’s financial decisions.

“We have to refresh our forms every two years, but it just so happened that we [changed] our custodian [last year],” Lester said. “National Bank said […] that they’d respect the paperwork from the old custodian for a year and let us trade for a year, but now they won’t let us buy until we get all the rest of the paperwork in.”

Lester said the decision to switch custodians from Fidelity, LAM’s previous bank, to National Bank last year was based on a number of factors.

“The main reasons for choosing [National Bank] over Fidelity were price, service, size, and current client satisfaction,” he said.

According to SSMU Vice-President Finance and Operations Tyler Hofmeister, SSMU’s investments are currently fiscally modest, and so he does not expect the current portfolio’s value to change drastically while SSMU remains unable to make new investments.

“[The portfolio] looks conservative,” Hofmeister said. “Most of the holdings are in more secure investments, such as utilities, telecommunications, and fixed income securities.”

Although the National Bank places restrictions on SSMU because they lack a BoD, they do not limit the selling of shares, according to Hofmeister. This means that SSMU can continue to pursue their intention to divest from certain companies—plans that arose from concerns about unethical practices.

SSMU’s Financial Ethics Research Committee (FERC) is responsible for establishing policies that guide and maintain the social responsibility of SSMU’s investments. Last year, the committee drafted a checklist of companies deemed unacceptable for investment.

“We gave this filter to LAM [and gave them] 10 [companies] we [wanted] to divest from,” last year’s FERC coordinator Adam Winer said. “SSMU policy dictates that we can’t be invested in companies that derive a large share of their profits from fossil fuels, or whose core business activities involve the extraction and distribution of fossil fuels, whether in connection to tar sands in Canada or globally.”

At the Winter 2013 Midpoint Review of SSMU’s investments, FERC researched the companies and determined which ones violated SSMU’s bylaw for socially responsible investment—for example, SSMU is committed to avoiding companies associated with environmentally harmful areas or human rights abuse.

In one instance, the committee recommended that the FERC further research Bell Alliant Inc., a telecommunications provider that has partnerships with companies involved in the tar sands, rather than divesting from them.

“Though their partnerships with tar sands companies sparked some discussion among the committee, our conclusion was that providing networks to tar sands companies is unavoidable for a telecommunications corporation,” the review said.

On the other hand, FERC recommended that SSMU immediately divest from Fortis Inc., a distributor of natural gas and electricity, due to their high level of association with the tar sands.

Hofmeister explained that the policies shaping the decisions SSMU makes are listed can be found in the SSMU policy book on their website. According to Lester, two divestments remain to be made, which he will make when a “trigger moment” occurs for the stocks, to allow him to sell them at an optimal price.

In terms of future outlook for the portfolio, Hofmeister explained that in light of SSMU’s projected budget deficit for upcoming years, SSMU is considering utilizing the investment portfolio as part of a long-term solution.

“[We are looking to change SSMU’s] investment portfolio to an endowment fund,” Hofmeister said. “This means that a certain amount […] decided upon with the SSMU General Manager, SSMU Comptroller, myself, and LAM will be taken from the portfolio each year to help pay for capital expenditures.”

In order to break from the current state of financial limbo facing SSMU’s investments, the upcoming GA will need to meet quorum of 100 students to officially appoint the BoD.

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  1. Pingback: SSMU Special GA addresses $21,000 Frosh deficit, seeks input for Student-Run Café | McGill Tribune

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