Endowments Face Intense Investment Protests

By Mark Bruno
Wednesday, March 24, 2004

University endowments are about to come under further pressure from students over their investments in one of the nation's largest hedge funds. Farallon Capital Management has denied requests from a coalition of university students and alumni to meet and discuss its investment practices. Now the coalition, who alleges that Farallon is investing their universities' endowment money unethically, is gearing up to grow its network of students and alumni for a "national day of action".

"We're not going to give up at all," says Justin Ruben, a Yale University alumnus and member of the school's Graduate Employees and Students Organization. The coalition hopes to put increased pressure on the firm and its partner universities to disclose more information about their investments.

As previously reported in FundFire, students and alumni from Yale, Stanford University, the University of Texas and the University of Pennsylvania wrote to Tom Steyer, senior managing member and founder of Farallon, earlier this month and requested a meeting to discuss making the hedge fund's investments more transparent. Each of the university endowments have investments with the $8 billion San Francisco-based firm.

In Steyer's letter to the group last week, he says that Farallon does not believe that such a meeting is appropriate. "We are proud of the work we have done and continue to do for universities, and appreciate the important issues you raise - even as we have strong disagreements with you on the facts about our investments and the conclusions you draw," says Steyer in his letter to the coalition. The firm would not comment beyond the letter, but a spokesperson says that Farallon intends for the letter to be its final response to the coalition.

Ruben says that while he is "disappointed" that Farallon has refused to meet with him and other students, the group will be "intensifying its efforts" at a larger number of college campuses. "We are looking to dramatically grow the number of universities involved," says Ruben. "We're aiming to have representation at every school that has a portion of its endowment invested in Farallon - and also to expand to those universities that could be potential clients of Farallon's in the future."

Yale, Stanford, Pennsylvania, Texas and Duke University were the five schools whose students started the crusade for hedge fund transparency and socially responsible investing. But now students and alumni representing at least seven universities with investments in Farallon are expected to pressure their institutions as well. These universities include Princeton, Tufts, Michigan State, Michigan, Scripps College, and Virginia Tech - universities whose endowments have roughly a combined $15 billion. Endowments are estimated to make up nearly half of Farallon's assets under management.

The network of students and alumni, who recently launched a Web site unfarallon.info chronicling their campaign for investment disclosure, also decided this past Sunday that they will hold a nationwide demonstration against Farallon on April 15, according to Austin Van Zant. He is a student at the University of Texas, and a member of UT Watch, a university watchdog. "We're going to use this day to demonstrate the effects that our universities have on the world," says Van Zant. "The first thing that we are seeking is greater disclosure about how our universities' money is being invested."

Members of the coalition have already written David Swensen and Michael McCaffery, the heads of investments at the Yale and Stanford endowments, respectively. Ruben says he has not yet heard back from Swensen, and a Stanford spokesperson could not comment at press time if McCaffery intends to respond to the Stanford Student Coalition for Investment Disclosure. Both groups of students have requested a range of information on their endowments' investments with Farallon, who they allege has invested endowment money at the expense of environmental conditions in Colorado and California.

Officials from some of the universities invested in Farallon have, in past newspaper accounts, denied having any knowledge of connections to investments that might be considered an environmental detriment. And industry experts say that it might be difficult for investors to entirely know where their money is going when it is held by a hedge fund. "By nature, hedge funds are designed to operate in unregulated environments with as little transparency as possible," says Blaine Townsend. He is a v.p. and portfolio manager at Trillium Asset Management, a manager of socially responsible separate accounts in San Francisco. "It's a little bit difficult to reconcile investing in a hedge fund with a socially responsible investment policy if you're not completely aware of what the fund is invested in."

But Steyer, in his letter, says investors are aware of Farallon's positions, and that the firm acts responsibly and ethically. "Our financial success.is intricately linked to the values we have as an organization. Core among these is the belief that we will only be successful as a business if we act responsibly and ethically.We communicate extensively with our investors, including universities, on these and all other investment issues and concerns."

Despite existing levels of disclosure, a small number of "socially responsible" hedge funds are beginning to pop up as transparency becomes a greater concern of investors. "Everyone makes a big brouhaha about disclosure, but I don't see what the big deal is," says Jane Siebels-Kilnes, founder of Green Cay Asset Management, which runs four socially responsible hedge funds. "We disclose everything there is to disclose every quarter and it has never hurt our performance. And the only way that any investor can really be sure of what they are investing in is if the fund manager decides to disclose all of its positions."