The Times had a good piece a couple days ago about how college and university endowments are often opportunities for members of governing bodies to support their private investments—by getting the universities to invest in things they’ve invested in. What happens is that universities put these financiers on their boards because of their perceived investment expertise and their ability to help the university gain access to hard-to-access investments. (I am skeptical that any investment is hard to access these days, but never mind.) Then the board members turn around and recommend the university make investments from which they, the board members, might profit.
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.
The Times hangs this piece on Dartmouth, which seems to have a number of potential conflicts. Elsewhere around the Ivy League:
…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.
My guess is that this practice is rampant, especially since hedge fund returns have been so miserable the past few years. (Hey, they need new investors from somewhere.) I’ll be curious to see what comes of this.