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NH Attorney General Declines to Investigate Trustee Insider Dealing

After a preliminary review, the NH AG’s Charitable Trust’s Office has declined to investigate the charges leveled against the College’s Board of Trustees in an anonymous memo written by College employees calling themselves The Friends of Eleazar Wheelock. The accusatory missive, dated February 4, was first published publicly in this space on May 21. The group’s charges include the mismanagement of huge sums of Dartmouth money, the receipt of outsized fees, large losses, “pay for play” practices, and an attitude that allowed ten or more Trustees to manage a large portion of the College’s endowment.

Anthony I. Blenkinsop, director of the Office, wrote a letter to the College dated Friday to announce the decision. He noted that the Board had followed all of the formal requirements of NH’s charitable trust laws in making its many investments with firms belonging to or associated with Trustees: the Board had properly published notice of the individual transactions, and Trustees that were to manage parts of the College’s endowment money had properly recused themselves from meetings during which their investment proposals were evaluated.

The AG letter made no note of the fact that more Dartmouth Trustees had a direct interest in managing the College’s endowment than Trustees at all of the Ivy schools other than Brown. On May 31, Reuters reported:

Dartmouth and Brown - two of the eight Ivy League colleges and universities - lead the group in terms of investing their endowments with firms that have business ties to members of their boards of trustees, a review by Reuters of the Ivies’ investment practices found.

In contrast, the endowments of the University of Pennsylvania, Harvard University and Yale University did not disclose any investments with firms that have ties to their trustees.

Blenkinsop did observe — based on the College’s representation — that Trustees managed 13.5% of Dartmouth’s invested funds, a figure that represents approximately $459 million of the $3.4 billion endowment. The friends of Eleazar Wheelock had asserted that the figure was 50% ($1.7 billion). Additionally Blenkinsop’s letter included a paraphrase of information received from the College on the overall performance of the endowment and of the monies handled by Trustees:

AG on Investments.jpg

This second-to-last sentence is most curious. The endowment as a whole rose only 37% from 2000-2011, after deducting the College’s draw and after adding alumni contributions (see below chart and table). However, Blenkinsop’s calculation seems to have been made, at the College’s behest, for those years “with the exception of 2008.” Why ignore that year? The omission of 2008 seems to me to be analogous to saying something like the 20th century was one of peace and prosperity for France, with the exception of 1914-1918 and 1940-45, which were challenging years for many nations.

In fact, for heavily leveraged hedge funds, 2008 was an utterly disastrous year — far worse than for the market in general — with some of the Trustee’s investment vehicles being close to wiped out. The AG’s office should have pushed somewhat harder in asking the College to disclose the real results of Trustee investments. In the securities industry, fund managers can’t boast about the results in their good years and exclude the poor ones. Gimme a break.

We should recall at this point the endowment’s complete results under this Board and previous ones.

During the 1990-2000 period, Dartmouth’s endowment enjoyed the highest growth in the Ivy League:

Ivy Endowment Growth 1990-2000.jpg

In the subsequent eleven years (2000-2011), with much of the endowment in the hands of Trustees and their friends, the endowment had the lowest level of growth in the Ivies.

Ivy Endowment Growth 2000-2011.jpg

There is more to this story than the AG’s Charitable Trust Unit is letting on. Perhaps the Trustees did respect the form mandated by the statutes, but one hopes that our public servants keep the spirit of the laws in mind and not just the letter. Blenkinsop and his colleagues could have done a more thorough job in this matter.

Addendum: If you want to look for yourself at the endowment performance of all major colleges and universities, the National Association of College and University Business Officers (NACUBO)-Commonfund Study of Endowments for 2011 is here, and the Association’s historic data for schools back to 1990 is here.

Addendum: Trustees Ed Haldeman and T.J. Rogers have written to the Dartmouth community to announce the AG’s decision:

Please not that no reference is made below to the fact that fiscal 2008 has not been included in the calculation of the returns on the various types of investment by the endowment:

AG Trustee Letter 1.jpg

AG Letter 2.jpg

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