Attorney General Investigates Dartmouth Endowment Mismanagement Claims
(May 31, 2012) — The board of trustees and investment committee at Dartmouth College are being investigated by New Hampshire’s Attorney General’s Office after a complaint alleged mismanagement and conflicts of interest at the college’s $3.4 billion endowment.
The allegations come from a whistleblower letter allegedly sent by a group of former and current faculty and school employees, known as “The Friends of Eleazar Wheelock”, who claimed that wealthy alumni of Dartmouth College mismanaged its $3.4 billion endowment. The letter was sent to several government officials, including New Hampshire Attorney General Michael Delaney. “Over a period of seven years The College engaged Lehman Brothers in six ‘interest rate swaps’ totaling $550 million dollars. The current value of these ‘swaps’ is now in excess of two hundred million dollars,” the letter, obtained by college newspaper daily The Dartmouth, alleged. It continued: ““For over a decade we have been witnessing the quiet takeover of this great College by a cabal of external, wealthy alumni/ae of the college.”
Dartmouth College spokesman Justin Anderson, however, defended the management of the college’s endowment. “The implication in the letter that these investments are improper is completely false,” he told aiCIO. “The investments are explicitly legal and entirely proper.”
While the New Hampshire State Attorney General’s Office received a copy of the letter in February, it announced earlier this week that it is currently reviewing the allegations before deciding whether to pursue additional investigation, according to Director of the Charitable Trusts Unit Anthony Blenkinsop.
In response to the letter, Dartmouth issued the following statement:
“We have reviewed the letter to the Attorney General of the State of New Hampshire from the Friends of Eleazar Wheelock dated February 4, 2012 and find it inaccurate, misleading and irresponsible. The letter is riddled with inaccuracies including the notion that Dartmouth cannot pay the interest on its debt, that it invests funds for faculty savings and research grants in hedge funds, and that over 50% of the endowment is invested with trustees, investment committee members or their friends, among a range of other falsehoods.”
Dartmouth’s response to the letter continued to note that the college’s long-term debt carries the highest credit rating – AAA — from Fitch Ratings, which notes the college’s ‘strong balance sheet liquidity; healthy fundraising ability; and diverse revenues further support the rating and provide the college with a healthy financial cushion.’ “Both Moody’s and S&P have assigned Dartmouth long-term ratings one notch below the highest investment grade rating – Aa1 and AA+ respectively – signifying that the College has a ‘very strong capacity to meet financial commitments’ (S&P) and that its obligations are of ‘high quality and are subject to very low credit risk” (Moody’s),’ the statement said.
Furthermore, Dartmouth stated that the letter implies that it is fundamentally improper with colleges like Dartmouth investing with companies or funds managed by an alumnus or trustee.
The statement from the college concluded that its Investment Office, with the approval of the Investment Committee, selects managers for endowment investments based on the managers’ strategy, expertise and performance history, and the specific asset allocation needs of the endowment. The selection of managers is not based on their status as alumni or trustees of Dartmouth College, the school asserted. “For firms managed by individuals who are trustees of Dartmouth, New Hampshire law imposes special requirements to assure that the transaction is conducted on an arms-length basis and is in the best interests of the non-profit organization,” the statement said.