An oil legacy for Scottish society?

Last year Yale University’s Endowment scheme enjoyed a 28% rate of return, taking the total value of the Endowment to a cool $22.5bn.   The Endowment now generates a revenue of over $800m a year for the University. 

Yale may be the current star performer among American university endowments but the scale of its funds is not exceptional.  Harvard has a $29bn endowment.  Between them American universities have $342bn of endowments and last year the endowments of the seventy six wealthiest enjoyed a market beating 21.3% return.

Don’t imagine that this has nothing to do with the prospects for Scotland and Scottish civil society in particular.

A major factor in the recent spectacular performance of American endowments has been a switch from investing in equities to investing in commodities in general and oil in particular.  Hardly surprising with oil prices regularly breaching record levels above $130 a barrel.

It’s not only American university endowments which are benefiting. Collectively US foundations own $600bn of endowments.  After almost three years of rising oil prices any half competent investment manager will have made sure that oil has a growing presence among his funds’ invested assets.

Notoriously universities in the United Kingdom lack the endowment base of US universities.  The UK’s leaders are Oxford and Cambridge which between them have over £4bn of university and college endowments.   Other English universities probably have around £1bn of endowments between them.   Scottish universities between them have about £700m led by Edinburgh with assets of £400m.

If we assume that fund managers for English and Scottish universities pursue the same investment strategy then Oxford and Cambridge alone will be earning seven times more from Scotland’s North Sea oil than all the Scottish universities put together.

Many of the countries which have discovered oil have not only enjoyed the benefits of increased public revenues but can also look forward to the ‘in perpetuity’ benefits of oil based endowments.  In some countries those endowments have been set up by private individuals like Rockefeller, Getty and Gulbenkian.  Other oil producers such as Norway and Alberta have not been content to rely on the chance of private endowments and have set up public endowments.  Yet others like the Arab countries have a mixture of private endowment and public endowments currently operating as sovereign investment funds.

And where does Scotland stand in the oil endowment stakes?.  Beyond the Shetland Charitable Trust set up as a  result of local camapigning in 1976 and now holding assets of £214m to support Shetland’s 22,000 population, nowhere.  Thirty years of oil production in Scottish waters worth over $300bn have failed to produce a single major oil based endowment for Scotland.   The new generation of current Scottish philanthropists –  people such as Tom Hunter, Anne Gloag, Duncan Bannatyne – have made their £millions elsewhere.  The closest we have got to oil based endowments are the pledges of Ian Wood, who makes his money from servicing oil producers and of Bill Gammell -whose Cairn Energy has jumped into the FTSE 100 on the back of oil discoveries in northern India - to devote a considerable part of their fortunes to charitable endowments.

North Sea oil is past its peak.  It has perhaps another thirty years of significant production, on a declining trend.  Yet these are also likely to be years of high oil prices  potentially generating under current constitutional arrangements as much as £300bn in revenues to the UK Treasury as well as tens of £billions to private shareholders, institutions and charitable endowments outwith Scotland, not least in the US and in England.

Can Scottish civil society delay any longer to demand that before the oil finally runs out the people of Scotland should be assured of some enduring oil legacy of their own?.  It could take various forms - the creation of local endowments in Scotland’s most disadvantaged communities, or extending the  endowed base of Scotland’s universities and cultural institutions to strengthen their independence from the state, or creating a group of charitable grant giving foundations to redress the imbalance with London based foundations, or perhaps a Scottish Global Foundation to fund Scottish civil society to provide benefits for future generations in Scotland and around the world. Or perhaps if oil prices continue on their current trajectory a combination of all four.

Stephen Maxwell
An earlier version of this article appeared in Third Force News, the weekly newspaper of Scotland’s third sector.