Freep article attempting to show UM endowment conflicts of interest
A Freep article came out this morning alleging conflict of interest by the UM endowment fund.
While I am 100% in favor of open dialogue, when an article makes obviously misleading statements, we should hold them responsible to this same level of journalistic responsibility that they are attempting to hold the university to.
The article heading and first paragraph (what most people read and remember) indicates that:
University of Michigan alumnus Donald C. Graham helped pay for the university's football team trip to France. His contribution came after U-M invested $102 million in his son's private equity funds.
Ok, that definitely sounds like quid pro quo and that the University is likely making poor choices.
However if you read further it becomes less clear:
Graham and his family foundation have donated more than $60 million to Michigan, including paying for half of the estimated $800,000 cost of the Wolverines' trip to France last spring, organized by coach Jim Harbaugh.
While it may be true that the endowment fund has invested $102 million in either Inverness Graham or Graham Partners, this article does not appear to have asked, or care, frankly, whether the endowment fund actually did any due diligence. These are by all accounts solid investment vehicles and is the university really supposed to overlook a dedicated and generous donor because of the appearance of conflict of interest? This author clearly has no understanding of business. You actually assess a value to partnerships, working with people and groups that you trust and that have a vested interest in you and yours. It is much less likely that Graham, a donor of $60 million to the university, is out to swindle the university, than some OSU alumni who likewise runs a private equity firm.
If you think Graham got the better end of this stick in giving $60 million to be able to invest $102 million, that's sad.
August 3rd, 2018 at 10:29 AM ^
And there's the problem. You offer your example of a WMU board member who isn't allowed to manage the Western endowment. Fine. Here's an excerpt from the Freep piece linked:
"U-M's endowment has invested a total of $102 million in four private equity funds run by the son of U-M alumnus and mega-donor Donald Graham. Graham and his family foundation have donated more than $60 million to Michigan, including paying for half of the estimated $800,000 cost of the Wolverines' trip to France last spring, organized by coach Jim Harbaugh."
Sounds sketchy!
Only the $102 million is invested with Donald Graham's SON. Not Donald Graham.
Donald Graham is a different guy, not the asset manager, and has donated $60 millon to Michigan. If that's too close to comfort, I get it. You want nepotism rules? Go for it. But these are not the same people.
Your example of a WMU board member doesn't equate. Is the WMU board member's son's firm allowed to invest that Bronco cash?
August 3rd, 2018 at 10:56 AM ^
According to the links in the OP, both are associate with the school:
"Don currently serves on the President's Advisory Group for the University, founded the University's Graham Sustainability Institute, and serves as an active volunteer in several areas including the University's College of Engineering and Athletic Department."
"Ken currently serves on the National Advisory Board for Technology Transfer at the University of Michigan..."
I am not calling this sketchy and don't even know that their association with the university is an issue. I am just saying that it is an easy conclusion to draw that a close relationship to UM = access to endowment money and the school would be best served to have a uniform policy and transparency with respect to how the money is handled.
August 3rd, 2018 at 11:01 AM ^
Fair enough.
August 3rd, 2018 at 10:41 AM ^
Those are board members who are prohibited from receiving funds to manage; they would likely have influence over selecting fund managers, so that makes sense. Do the universities mentioned have the same rule for alumni or donors? I suspect that they do not.
August 3rd, 2018 at 10:11 AM ^
Thankfully the doner isn’t deemed to be “political” or Brian would shut this thread down (or maybe he would accept an endorsement for some cash).
August 3rd, 2018 at 11:17 AM ^
If you're implying Brian received money for any of his political posts, you need to back it up with facts. That's a fairly serious accusation, and one which strikes me as little more than tinfoil nonsense.
And for that matter, it's Brian's site. It's free. Don't like it, don't read it.
August 3rd, 2018 at 11:25 AM ^
Well said.
August 3rd, 2018 at 10:12 AM ^
I keep reading Graham as Graham Couch and thinking ... "well, yeah, of course that dude wrote this article." But, that's just my prejudice.
August 3rd, 2018 at 10:13 AM ^
Even if fully true:
Super rich family gives large chunk to university in exchange for a one-hundredth-sized benefit.
That's neither illegal nor unexpected.
I just don't care.
August 3rd, 2018 at 10:13 AM ^
Is Freep. Is sucky. Is not shocked.
August 3rd, 2018 at 10:24 AM ^
Yeah, this is really dumb. The author doesn't seem to grasp how the economics work as pointed out by the op, but unfortunately neither will most of the readers.
Also interesting that from what I could tell there is no information given on the fund to support the obvious implication it is somehow not a sound investment.
It's sad that the Freep has succeeded again in knocking us down to the same moral and ethical level as OSU/ MSU. See, we're just as bad as everyone else (/s)
August 3rd, 2018 at 10:26 AM ^
Wouldn't you want to invest with companies that are or employ University Alum? So it's only ethical to invest with companies that are either 1. Not a donor to the university (which I would then question the success of their business and loyalty or 2. not a Michigan Alum? If the 102 million we invested suddenly loses 40 Million dollars for bad management, then there should be a red flag... but otherwise, we are working with our alum to increase the wealth of our Endowment. I don't personally see an issue here...
August 3rd, 2018 at 10:53 AM ^
In fact if we want to chase shadows, my guess is that 90% of the 50 largest asset management groups in the U.S. have Michigan Alumni and donors in leadership positions somewhere within their organization.
August 3rd, 2018 at 10:26 AM ^
Someone tell freep to get a life and cover somethin more important. How bout the rape culture at msu that both coaches covered up or what's goin on at osu? I'm sure there's a lot more info to be shared in those cases
August 3rd, 2018 at 10:30 AM ^
I don't read the Freep. I live in Chicago and occasionally look at the Tribune. If the Freep's business section is anything like the Tribune's, this article is pretty typical -- shabby.
August 3rd, 2018 at 10:44 AM ^
Your (OP's) last sentence sums up this matter. Michigan has gotten about a 60 cents on the dollar return...I'll take it...where do sign.
August 3rd, 2018 at 10:52 AM ^
If they are digging for dirt on M and the best they can come up with is that the endowment made a responsible investment of $102M in a fund run by the son of someone that donated $62M to the university, well....carry on.
I'm okay with that.
August 3rd, 2018 at 11:00 AM ^
"Is the university really supposed to overlook a dedicated and generous donor because of the appearance of conflict of interest?"
I would say yes, since the mere appearance of the possibility of COI itself makes an action unethical. On the other hand, most people don't seem to know about that aspect of ethical behavior, let alone care about it, so why should the U hold itself to that standard? That was a rhetorical question.
That said, it does seem like the Freep is trying to reverse-engineer a scandal here.
August 3rd, 2018 at 11:10 AM ^
The University of Michigan is wealthy....like really, really, really friggin' rich. Kudos to those on both the investment and fundraising sides, through their work our school has the largest endowment of any individual public university and the largest of any university overall that isn't an Ivy, Stanford or MIT (and we're still higher than half the Ivy League)
The UTexas system (14 different universities) and Texas A&M System (11 universities and 7 state agencies), which account for their endowments system-wide, have higher combined totals though their respective flagship schools fall short of Michigan on their own.
August 3rd, 2018 at 11:26 AM ^
I think the better question is to ask why the university should handle their endowment in house. The fund managers should simply not know who are the investors and their relatives. In the end, public entities should be forced to out-source competitively their endowment management. They could break it in to $1 billion dollar pieces and simply hire and retain managers based on their return rates.
August 3rd, 2018 at 11:24 AM ^
I worked in the investment management company of a private university’s endowment for several years and still provide some consulting for them. A significant portion of hour private investments (I.e., hedge funds, private equity, private real estate....) are managed by our alums. We like to work with our alums. In some cases, we actually provide the initial seed money to get a fund started and in exchange we receive lower fees. In other cases, established funds that are closed to outside investors are willing to accept money from us because they are alums and because we are long term investors. Also, we have alums who act as consultants. We do pay attention to COI but the fund is managed as a separate entity and our compensations partly depend on the performance of the fund. Finally, we have never received a call from president’s office asking us to allocate funds to an alum.
I know some of the people who manage UM’s endowment. Though investment management company is setup differently from ours, I will be very surprised to learn that the allocation to that fund did not pass rigorous due diligence—especially at a public institution that is subject to FOI.
August 3rd, 2018 at 11:27 AM ^
I think the better question is to ask why the university should handle their endowment in house. The fund managers should simply not know who are the investors and their relatives. In the end, public entities should be forced to out-source competitively their endowment management. They could break it in to $1 billion dollar pieces and simply hire and retain managers based on their return rates.
August 3rd, 2018 at 11:40 AM ^
I'm more annoyed by another FREEP article playing up how much MSU feeds off being disrespected. And one of their references is the coaches poll that has MSU ranked higher than us.
August 3rd, 2018 at 11:48 AM ^
The freep keeps looking for things, my feelings towards their shit journalism....
August 3rd, 2018 at 12:28 PM ^
The University of Michigan is one of the best universities in the world. The Ross School of Business is one of the best business schools in the world. If you look at any top hedge fund, investment bank, etc., there will be UofM graduates. But sure, let's go with the conflict of interest angle.
August 3rd, 2018 at 12:30 PM ^
This amounts to basically a bit of a smear article. Nothing illegal, unethical, or immoral has transpired. The PWC audit did recommend tighter controls but there are no prevailing winds pushing for legislation to forbid investing in financial entities that have ties to donors. So long as proper due diligence is performed up front and involves people who have no vested interest in performing said due diligence the appearance of impropriety is avoided.
August 3rd, 2018 at 12:33 PM ^
Thin ice this rag is on. I was just starting to forgive and forget.
That seems like an expensive trip to Paris!
When does the Freepress ever do anything other than try to find scandal at UM? It's like they seriously have nothing better to write about.
Even the first part isn’t a problem at all. Not one bit. You should make known all potential conflicts of interest, then proceed into action to ensure the conflict isn’t actually realized and material. Endowment investments are serious endeavors. Nothing to see here.
It may shock some people to find out that the Free Press is a dying newspaper and will do whatever they can to draw attention to themselves, relevance and logic be damned.
I am 100% sure that UM tends to invest some of its funds into investment vehicles connected to alumni. That is true at basically any school that has a large endowment and a successful and large alumni base. These aren't losing endeavors, and in all of these articles it's been pretty clear that the Free Press doesn't have some smoking gun showing corruption so they just keep throwing shit at the fan and hope some of it sticks.
This seems inevitable. The outrage cycle has tired on MSU, in spite of continued malfeasance, so time to pick around U of M to conjure something up. Hacks.