September 13, 2018
University of Michigan leaders are reaffirming support for the university’s investment practices while refuting new claims by the Detroit Free Press that imply wrongdoing on the part of the university and its regents in regard to interactions with university donors.
The article was the latest installment in the newspaper’s continued coverage of U-M’s investment work. University officials say the newspaper has not found a single instance of wrongdoing in more than a year of reporting.
“We categorically reject the innuendo from the Free Press that there has been any wrongdoing on the part of the university or members of our Board of Regents in how we interact with our donors or manage the university’s investments,” said Rick Fitzgerald, university spokesperson. “We are proud of the successful performance of our endowment and the ethical manner in which we manage our investments.”
U-M investments are reviewed every year as part of the university’s annual financial audit. Additionally, a recent review of non-financial investment functions performed by accounting firm PricewaterhouseCoopers showed that U-M has in place a meaningful series of controls for its investment functions, including its documentation of conflicts of interest.
Information on the university’s endowment has long been available publicly. The university publishes an annual report of investments, and additional background information on the endowment is available on university websites. Last year, U-M’s Investment Office published a book, “The Evolution of Investing at the University of Michigan 1817-2016,” to share the history and innovations of institutional investment management at U-M.
In particular, the Free Press story implied that Regent Andrea Fischer Newman voted to award investment work based on campaign donations she received. Actually, the investments were approved years ago by the full board, unanimously, and in three open meetings in 2000, 2004 and 2011.
Virtually every campaign donation — in this case, donations from two people whose firms managed U-M endowment investments, and one person whose son managed university investments — came many years after the fact, Newman wrote in a statement, adding that every campaign donation she received was legal and publicly disclosed.
“Regent Newman and her colleagues on the Board of Regents serve our university with integrity that is beyond reproach, guided by an unwavering commitment to Michigan,” President Mark Schlissel said in reaction to the Free Press story. “Regent Newman has acted ethically and appropriately, and I strongly disagree with the paper's characterizations of her and others who serve the university.
“We manage our endowment transparently, striving always to achieve strong investment returns with an acceptable level of risk,” Schlissel added. “Our investment results speak for themselves. Our students, patients, donors and researchers expect and deserve our very best effort at maximizing our endowment performance for the benefit of our teaching, research and patient care missions.”
Newman told the Free Press that her decisions are based on what she believes is best for the university she loves.
“As a regent of the University of Michigan, I make decisions based solely on what is best for the institution,” Newman wrote. “No reasonable person who understands the university investment procedures could draw a connection between a unanimous decision almost two decades ago and a modest show of campaign support in recent years.”
Regents observe the same applicable state laws as every other elected official in the state with regard to campaign contributions.
Newman said in her statement that she is “keenly aware that perception matters in public life,” and has therefore decided to return donations made by Sandy Robertson, Stephen M. Ross and Donald Graham.
“I will always be transparent and accountable to the people of Michigan,” she wrote.
U-M has one of the most successful investment operations in all of higher education. The U-M endowment is ranked as the ninth largest among all university endowments.
In the course of managing the endowment, the university makes dozens of investments each year. Sometimes, those investments are with firms led by U-M alumni donors, but overwhelmingly, they are not, officials have said.
The newspaper questions whether the university should ever be doing business with alumni donors or their families, even if it is a sound investment for the university. U-M has 380,000 individual donors in the current Victors for Michigan campaign, many of whom are alumni.
When adding in family members, that means excluding well beyond a million individuals — according to the paper — from doing business with the institution.
In every case, investment decisions are made based solely upon risk-adjusted rates of return.
The university’s investment officers are compensated, in significant part, based on how well the investments perform. U-M’s investment performance puts it near the top of all endowments for both the past five- and 10-year periods, as reported by Cambridge Associates, an investment consulting firm that serves colleges, universities and large institutional investors.
Last year, U-M’s endowment generated $325 million to fund student scholarships, operate its hospital, conduct life-saving research and support other university operations.
In the past 20 years, the university’s long-term investment strategy and spending policies have generated $4.2 billion in endowment distributions to support U-M operations. This comes at a time of lagging public funding for higher education.
“The $4 billion in endowment distributions to the university’s budget that have been generated over the last 20 years that support student scholarships and university programs is evidence of our success and the endowment’s importance. Without donor and endowment support, annual tuition in Ann Arbor would be nearly $6,000 higher per student,” Schlissel wrote in a Feb. 4 editorial for the Detroit Free Press.
U-M investments are reviewed every year as part of the university’s annual financial audit. The university has in place a meaningful series of controls for its investment functions, a conclusion that is based in part on a recent review of specified non-financial investment functions performed by accounting firm PricewaterhouseCoopers.
The review did make a few suggested improvements, most of which already have been implemented. Information on the university’s endowment has long been available publicly.
“The University of Michigan has an outstanding, 100-year tradition of philanthropy that is foundational to our success as one of the world’s great public universities,” Fitzgerald said. “We are grateful to our donors for their generosity and support of the university, and we take very seriously our responsibility for investing their contributions. They help us fund programs like the Go Blue Guarantee for student support, conduct world-class medical care and research, and support many dozens of top 10 academic programs across the institution.
“The University of Michigan’s investment practices are fundamental to the university’s success, and the sole reason we choose investments is the likelihood of good returns balanced with acceptable risk. This is true in every case.
“The Free Press has tried repeatedly to make this about something else, but it simply isn’t true.”