College works to avoid conflicts in investments

by Tatiana Cooke | 12/1/09 11:00pm

Dartmouth, in suspending the search for a new chief investment officer and ceding control of the College's investment office to a Board of Trustees committee in November, created the potential for significant conflicts of interest several trustees are in the investment industry. College officials, however, affirm significant safeguards have been put in place to avoid conflicts in the temporary arrangement, which is not uncommon among colleges and universities.

David Russ, Dartmouth's previous chief investment officer, left the College in June to head Credit Suisse's new Investment and Strategies Solutions Group. The investment office currently reports to an investment committee, chaired by Trustee Stephen Mandel Jr. '78, that was previously a Board finance subcommittee. Former Trustee Peter Fahey '68 Th '69 is assisting Mandel, who founded the investment firm Lone Pine Capital, as vice-chair of the investment committee. Fahey is a retired limited partner of Goldman Sachs.

"I have been told that we take every precaution to ensure that we don't have conflicts of interest when we are thinking about specific funds that are related to specific members of our Board or specific alums, and we follow the rules very carefully," College President Jim Yong Kim said in an interview with The Dartmouth Editorial Board on Tuesday.

Mandel will recuse himself from any matters related to his firm, according to Dartmouth senior vice president and strategic advisor Steve Kadish, and Dartmouth's general counsel's office is currently reviewing the College's conflict of interest protocol, Kadish said. In addition, Kim said that in the name of transparency, any transactions involving a potential conflict would have to be advertised in a newspaper.

William Jarvis, the managing director of the education nonprofit Commonfund, said in an interview with The Dartmouth that the College's situation is common investment committee members often have experience in the investment industry and is not problematic as long as safeguards are put in place.

"Not everybody has a chief investment officer sometimes you have an investment committee," he said. "I wouldn't say that there's necessarily a set structure or formula that has to be observed."

Cornell University, Yale University, Princeton University, Brown University, the University of Pennsylvania, Harvard University and Williams College all currently have chief investment officers, according to their respective web sites.

Middlebury College's endowment is overseen by its administration and the investment committee of its board of trustees.

Dartmouth's investment committee will provisionally oversee the investment office for the next year, Kadish said.

"If this doesn't work out well, or if there are things that we learn about doing this that shows it isn't optimal, then I think we will make a change," Kadish said.

Kadish said that Mandel's service as committee chair will give the investment office the opportunity to work with and learn from "one of the best investors in the U.S."

"It's a very healthy moment of learning what we have and then deciding where we want to go," Kadish said.

Although recent investment committees have functioned without a vice chair, Fahey's experience will make him a valuable member of the team, Kadish said.

"Peter has had the advantage of being on the Board and on the investment committee, and has had the chance to work with the investment office for about six months," he said.