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Trustees’ Self-dealing Controversy in NYT

The New York Times has run an extended report, entitled Dartmouth Controversy Reflects Quandary for Endowments, on the enduring controversy concerning the Board of Trustees’ practice of investing endowment money with its own members. An excerpt:

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 over potential 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 the 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, it can be stickier to fire the money manager.

“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, Conn. “It avoids the perception of conflict of interest and self dealing.”…

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 is disclosed.

But Dartmouth, which has six funds with trustee ties, appears to be among the more aggressive. Among the Ivy League universities, Brown and Cornell have disclosed five trustee-related investments. Princeton, Yale, Columbia and Pennsylvania have reported just one. Harvard 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.

Addendum: I added the following comment to the story:

How can Trustees objectively make decisions about the institution, decisions that might be unpopular with other Trustees, when they are beholden to fellow Trustees on the Board’s Investment Committee for future investments in their funds? When some Trustees depend on others for financial rewards, there is a glaring conflict of interest.

The accusatory letter written by College employees is here:

http://www.dartblog.com/data/2012/05/010228.php

From 1990 to 2000, Dartmouth had the fastest growing endowment in the Ivy League; since 2000, it has had the slowest growing endowment:

http://www.dartblog.com/data/2012/05/010232.php

Dartmouth has never released the results of investments with Trustees’ funds.

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