I noted the letter to the New Hampshire AG from some anonymous whistle-blowers a few months back. The New Hampshire AG has decided not to investigate. Joe Asch has the documents and extensive analysis here. According to the AG’s office, about 13.5% of Dartmouth’s endowment is invested in related-party investments (about $459 million). Asch notes one bit of a non sequitur in the AG’s letter, however: “Finally, Dartmouth states that with the exception of 2008, which was a challenging year for many investors, Dartmouth’s investments, including those with interested parties, have provided a better than average return to Dartmouth (11.1 % for its related party investments and 7.0% for the endowment as a whole over the past ten years). As Joe observes, “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.” Indeed, the whole point is whether the returns on these investments are justified by their risk level (including liquidity risk) and management fees relative to other investments–for which excluding the debacle of 2008 misses the entire point.
Moreover, leaving aside this issue of apparent cherry-picking of the relevant dates (which Joe discusses in some detail), the other key question would seem to be not what Dartmouth’s overall investment return was but the return on these investments. Perhaps they outperformed the market or non-related party investments and they are just too modest to report it. Seriously, though, $459 million seems like a sufficiently large base on which to compare that chunk to the rest of the endowment and it seems like relevant information to report.
It isn’t obvious to me that any of this rises to the level of the sort of thing in which the Attorney General’s office should be interested. But it also seems appropriate that universities act in a more forthcoming manner about these investments and whether they are justified by their risk and expense relative to other investments. What is the problem with simply disclosing the relevant details of these investments in a full and transparent way that doesn’t cherry-pick or obscure how the returns are reported?
Let me emphasize that I am not in any way implying that anything illegal or unethical is going on here or that these aren’t good investment opportunities. Nor do I have any basis for disagreeing with the decision by the NH AG not to pursue an investigation here. All I’m saying is that we simply do not know any of that and that there is nothing in the letter by the NH AG that provides any useful information on the relevant questions. Moreover, I would expect that universities and other non-profits would want to bend-over backwards to be forthcoming and transparent about how these sorts of decisions are made and their financial consequences. We are talking about 13.5% of the endowment–or $459 million. Instead, it really is like pulling teeth just to figure out the simple facts of the situation.
Update: My apologies–on rereading the AG’s letter, I clearly misinterpreted a sentence in the AG’s letter: “Finally, Dartmouth states that with the exception of 2008, which was a challenging year for many investors, Dartmouth’s investments, including those with interested parties, have provided a better than average return to Dartmouth (11.1 % for its related party investments and 7.0% for the endowment as a whole over the past ten years). This assertion is corroborated by the college’s most recent audited financial statement.” Upon first reading I misread the relationship between the parenthetical phrase and the phrase that preceded it. I apologize and have deleted the passages that reflect my error and retract those comments.
Also, I wanted to make clear that the issue here in my mind is simply one of full disclosure, not a proposal to prohibit these investments (which is a red herring with respect to that more modest proposal).
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