How Wall Street Buys Ivy League Access

The recent admissions scandal reminds us that the most elite U.S. universities and the wealthiest Americans have long collaborated in plain sight to mutual advantage, writes Charlie Eaton.

March 19, 2019
 
 
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Last week, federal prosecutors announced charges against 33 wealthy parents and more than a dozen others who allegedly helped them use bribes to seek admission for their children to Stanford University, Yale University and other elite institutions.

The entitled audacity of the plotters is grotesque. But what the parents involved all have most in common is that they belong to the class of America’s merely rich -- a ragtag collection of millionaires. On the other hand, the scheme does not appear to have involved any of the nation’s 500-plus billionaires, plutocrats with several orders of magnitude more wealth.

The absence of billionaires from this particular conspiracy reflects that the most elite U.S. universities and the wealthiest Americans have long collaborated in plain sight to mutual advantage. In his 1955 book, The Power Elite, sociologist C. Wright Mills documented that half of the 90 richest Americans at the time who had attended college had gone to the Ivy League, with a third having gone to Harvard University or Yale. Fifty years earlier, the editor and historian Frederick Lewis Allen reported that the nation’s 10 top financiers had sent 12 of their 15 sons to Harvard or Yale. The other three went to Amherst College, Brown University and Columbia University.

Over the last 30 years, however, something big has changed in the ties between prestigious universities and the nation’s rich and powerful: Wall Street financiers have attained even greater dominance as alumni, donors and governing board members.

Private equity and hedge fund managers have particularly benefited from Ivy League connections, and they have returned the favor. Private equity and hedge funds hardly even existed at the beginning of the 1980s. But financial deregulation made it possible for their managers to make fast fortunes. This led to a rapid migration to the new funds from the ranks of investment banking, a profession long dominated by Ivy League graduates, according to sociologist Lauren Rivera.

Those Ivy Leaguers who joined the private equity and hedge fund revolutions were well rewarded. As part of my ongoing research on the power of financiers in the U.S. higher education system, I used profiles published in the Forbes 400 list of the wealthiest Americans to code how each of the noninheriting people on the list attained their wealth. While virtually absent from the list in 1982, private equity and hedge fund managers had come to make up 20 percent of the noninheriting members of the list of the wealthiest Americans by 2017, rivaled only by the billionaires of high tech.

I also coded which universities had conferred degrees to each of the Forbes 400 superrich. This revealed that the nation’s wealthiest financiers are much more likely to have Ivy League ties than other economic elites. For 2017, 58 percent of private equity and hedge fund managers had Ivy League degrees, according to my research. Just 30 percent of those from outside finance had an Ivy League degree.

My analysis of the Forbes data adds quantitative evidence to recent qualitative research by Rivera, Megan Tobias Neely and a team of researchers working with Amy J. Binder. These sociologists have shown how elite private universities foster shared identities, trust and social networks that provide advantages to their alumni in ways that have helped keep the top echelons of finance closed to women, people of color and those without degrees from the most prestigious private universities.

For example, when Yale alumnus and hedge fund billionaire Tom Steyer learned that his fellow Yalie David Swensen had been appointed to lead the university’s endowment, he reached out and asked him to invest Yale endowment capital in his upstart Farallon Capital. Two years later, Swensen provided Farallon with $300 million, a third of the firm’s total investment capital.

With deep pockets and the élan of wealth, the new financiers also have assumed pre-eminence on the boards of their private university alma maters. I uncovered this transformation by working with Albina Gibadullina to build a data set from profiles of board members published online by the top 30 private universities and top 30 public universities since 2003. We linked our data with lists of the board members for the top 23 private universities in 1989 that were gathered by legal scholar Garry W. Jenkins, who has found an increase in representation of financiers of all types on nonprofit boards.

By tracking the type of financial firm for each financier on universities’ boards, we’ve found that private equity and hedge fund managers together went from just 3 percent of board seats at the top private universities in 1989 to 17 percent in 2014. That drove an increase in the share of board seats going to any kind of financiers, including traditional bankers, from 17 to 32 percent. Private equity and hedge fund managers gained an even larger share of board officer positions, rising from just 4 percent to 32 percent of board chairs, vice chairs and secretaries. This drove an increase in the share of board offices held by any kind of financier from 32 percent to 67 percent. Tellingly, no comparable transformation has occurred at public universities.

Private university board members are explicitly expected to donate generously and raise money from their peers. For example, private equity billionaire Robert Bass joined Stanford’s board in 1989 having previously attended its business school. By 1991, Bass had given $25 million to the university. Steyer similarly has given tens of millions of dollars to Stanford, where he served on the board from 2012 to 2017, as well as millions to Yale. Harvard alumnus and hedge fund investor John A. Paulson, who serves on the Dean’s Advisory Board of Harvard Business School, gave the university a record-setting $400 million donation in 2015, just a few years after he made billions by betting on the collapse of mortgage-backed securities.

Journalist and author Daniel Golden has shown that the children of trustees and billionaire donors are routinely given admissions preferences. So no illegal bribe is needed to gain an advantage. Golden found, for instance, that Stanford admitted one of Bass’s children in 1998 despite grades and an SAT score (1220) that were lower than those of seven of her classmates who were denied admission and below the average for admitted students.

As long as Wall Street and other billionaires retain their privileged access to the nation’s most elite schools, millionaire strivers will continue to use whatever means they can -- even the illicit ones revealed last week -- to help their children also gain admittance. The less advantaged simply remain left out. In fact, Harvard economist Raj Chetty and his colleagues have shown that 38 private colleges today enroll more students from households in the top 1 percent for income than from the bottom 60 percent combined.

If we want roll back this persistent inequity, we first will need to break the co-dependency of the Ivy League and powerful economic elites such as those from finance. U.S. senator Ron Wyden, who is the ranking member on the Senate Finance Committee, announced legislation last week that takes a promising first step in this direction. The bill would eliminate tax deductions for donations given “before or during the enrollment of children of the donor’s family.” Hopefully, this will be an opening salvo for more creative policy initiatives to level the playing field at America’s most elite colleges and universities.

Bio

Charlie Eaton (@eatoncharlie) is an assistant professor of sociology at the University of California, Merced. He is working on a book entitled Bankers in the Ivory Tower: The Rise of Finance in U.S. Higher Education and Society.

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