Sydney University’s private asset portfolio under scrutiny for defence ties

An external panel has recommended that Australia’s Sydney University minimise investments in defence and security-related industries within its A$770 million ($510 million) private asset portfolio rather than divest and book a A$67 million loss. 

The review was instigated by the University – which runs a A$3.4 billion portfolio comprised of donations and bequests – in mid-2024 following campus protests in response to the Middle East conflict. 

While the panel recommended the University sell its listed investments in aerospace companies, which generate revenue of about A$4.6 million, it deemed selling similar assets within its private equity pooled funds and fund-of-funds not feasible given the structure of those investments.

“It is not possible to impose exclusions on top tier private equity managers or upon private equity ‘fund of fund’ managers,” the report said.  

However, selling the entire portfolio on the secondaries market would invoke an estimated A$67 million discount on its current holding value, while the endowment would also miss out on future returns. 

“As also noted, the ‘opportunity cost’ of not investing in private funds (based on the current portfolio of A$770 million in investments) would be A$30 million per annum. This cost becomes exponentially greater, over time, given the effects of compounding returns.” 

Instead, the review recommended the University hold those private funds until maturity and identify any underlying investments that derive revenue from items listed on the Australian government’s Defence and Strategic Goods List (DSGL) Part One. It should disclose those investments annually and actively engage with private asset managers to stop any significant investment in those areas. 

The University of Sydney already excludes investments in cluster munitions, tobacco, fossil fuels and power generation companies that cannot demonstrate their transition to low carbon. 

The University is currently considering the findings of the report, which was overseen by ethics expert Simon Longstaff. 

global trend

The recommendation stands in contrast with a rising number of European pension funds which are loosening their ESG criteria to allow for greater investment in defence industries following pressure from the Trump administration. 

Denmark’s pension fund for academics, AkademikerPension – a strong proponent of applying an ESG lens across its portfolio – is the most recent fund to relax its rules for investments in the defence industry. 

“The security situation is currently worse than ever in recent times,” AkademikerPension CEO Jens Munch Holst said in a statement on the fund’s website in late June. 

“Russia continues its brutal war against Ukraine. And we see an increasingly clear picture of an imperialist Russia that clearly does not respect recognized borders and the right of other peoples to self-determination.  

“And at the same time, we can see that Europe, despite many talks with the American government, is very isolated when it comes to Ukraine, European security policy, the maintenance of democracy and relations with Russia. It is sad, and it calls for a new course in terms of investments in Europe’s defence.” 

It will now be able to invest in six European weapons manufacturers which have links to nuclear weapons: Airbus, Babcock International, Dassault Aviation, Leonardo, Saffron, and Thales. Three smaller companies have also been removed from its previous exclusion list (Serco Group, Groupe Reel and Ultra Electronics). However, the fund’s exclusion list still includes 46 weapons manufacturers. 

“We are not doing this to invest in nuclear weapons, but conversely, we do not want a small turnover from nuclear weapons-related activities to prevent us from supporting the capital construction of a European defence.” 

AkademikerPension’s statement was made on the same day that NATO leaders promised to boost annual defence spending to 5 per cent of their countries’ gross domestic product (GDP) by 2035. 

PFA Pension, the largest pension fund in Denmark, is another fund to recently allow investment in a select number of defence stocks. 

APG Asset Management which manages €552 billion ($650 billion) for Dutch pension fund Stichting Pensioenfonds ABP, is also considering increasing its existing $2.5 billion allocation to the defence sector, framing the argument in terms of security rather than buying weapons.