Newspaper article International Herald Tribune

Dispute at Dartmouth over Investments

Newspaper article International Herald Tribune

Dispute at Dartmouth over Investments

Article excerpt

College trustees' connections can prove profitable for a university's endowment fund, but they can also raise questions.

By the numbers, the endowment at Dartmouth College in New Hampshire had a banner year. The $3.49 billion fund returned 5.8 percent for the 12 months that ended in June -- the best in the Ivy League.

But the performance has been clouded by controversy. Last year, an anonymous letter signed by "the friends of Eleazar Wheelock," referring to the university's founder, asked New Hampshire state officials to investigate the endowment in terms of the potential for conflicts of interest raised by trustee-related investments.

Although the state attorney general's office decided that an investigation was not warranted, the situation highlights a thorny problem for college endowments.

Trustees' connections can prove profitable for universities, offering access to top-performing hedge funds and private equity firms that may not be open to other investors. But they can also create the appearance that the colleges may have nonfinancial motives for picking investments. And if the investments do not perform well, firing the money manager can be stickier.

"It's probably better not to" engage in such transactions, said John S. Griswold, executive director of the Commonfund Institute, the research arm of a money manager that caters to educational endowments in Wilton, Connecticut. "It avoids the perception of conflict of interest and self-dealing."

Universities like Dartmouth rely on endowments to help pay for financial aid, academics and operations. As part of their core fund- raising, colleges hunt for big donations from their most successful alumni, a group often heavily populated by financiers and professional investors. The trustees at Dartmouth, a board that oversees the university, include James G. Coulter, a founding partner of the private equity firm TPG Capital and Stephen F. Mandel Jr., the head of the hedge fund Lone Pine Capital.

Dartmouth has frequently tapped that pool to fill its endowment portfolio. In July, the university said that 13.5 percent of the assets were in funds led by trustees or members of the college's investment committee. Those included investments managed by Lone Pine, whose chief, Mr. Mandel, has been a Dartmouth trustee since 2007; by Welsh, Carson, Anderson & Stowe, a private equity firm whose co-founder, Russell L. Carson, was a Dartmouth trustee until 2009; and Apollo Global Management, the private equity firm run by Leon D. Black, a Dartmouth trustee until 2011.

Dartmouth is not an outlier in the practice. A 2011 study by the National Association of College and University Business Officers and the Commonfund Institute found that 56 percent of the 823 endowments surveyed allowed board members to do business with their university, as long as the relationship was disclosed.

But Dartmouth, which has six funds with trustee ties, appears to be among the more aggressive. Among the Ivy League universities, Brown in Rhode Island and Cornell in New York State have each disclosed five trustee-related investments. Princeton in New Jersey, Yale in Connecticut, Columbia in New York City and the University of Pennsylvania have reported just one each. Harvard in Massachusetts has not reported any trustee investments, but its reports do not include investments managed by firms of board members of Harvard Management, which runs the university's endowment.

"Dartmouth is proud that some of the world's leading money managers are Dartmouth alumni," said Robert B. Donin, the college's general counsel, adding that the picks were "based on a manager's strategy, expertise and performance history," rather than ties to the university.

Over all, the strategy has been sound. The Dartmouth-related managers produced average annual returns of 11.1 percent over the 10 years that ended in mid-2011. By comparison, the endowment as a whole is up 7 percent on average in the same period. …

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