University of Michigan Weighs More Secrecy for Some Investments

(Bloomberg) -- The University of Michigan’s $13 billion investment office may amend its investment decision-making process, making disclosure of some holdings more private at the third-wealthiest public university.

The potential switch comes after an outside auditor said the process impedes the staff’s ability to move quickly on investment opportunities. At Board of Regents’ meetings, details of new investments to private equity or hedge funds, including names of money managers, are provided along with funds that are slated to receive additional capital.

The Ann Arbor-based school said in a statement that it “goes beyond what peer institutions consider is necessary” when presenting investments for approval in public sessions.

University endowments often don’t share many details about their investment managers, including names and especially performance, though public schools are often more transparent than their private counterparts.

In March, the university changed how its endowment’s advisory committee handles potential conflicts of interest and retooled a school fund that helped augment salaries for Chief Investment Officer L. Erik Lundberg and his staff.

Michigan “would consider amending its approach” by presenting to the board broad outlines -- a model investment portfolio and performance benchmarks, Katherine E. White, chairwoman of the Regents’ finance, audit and investments committee, said in the statement.

The move comes as the university on Thursday released an audit that said the investment office, which oversees the $11.8 billion endowment, has “a meaningful series of controls” in the way it operates, but certain areas, including governance and due diligence, could be improved.

PricewaterhouseCoopers reviewed the office’s operations from July 1, 2017 to March 31, 2018. Among the functions looked at were governance, investment documentation, authorization and funding of commitments, conflicts of interest and travel and expense reimbursement.

Auditors found one investment wasn’t in compliance with the allocation policy approved by the regents. Another finding was that two meetings with external managers attended by investment staff weren’t documented until two to six months later, according to the report.

The university said in the statement that “it acknowledged there are certain areas for improvement and has identified the changes it will make, including several that were immediately implemented, with others being adopted in the months ahead.”

“The university, with rare exception, is functioning in accordance with a robust set of policies designed to assure responsible governance oversight of our investment activity,” president Mark Schlissel said in the statement.

The PwC report is a follow up from an audit started internally in 2014, said Rick Fitzgerald, a university spokesman. In May, The Detroit-Free Press reported that internal auditors cited problems with the endowment’s management in 2014. The newspaper previously published stories citing the office’s potential conflicts of interest. The university posted a series of responses on its website.

The paper also reported Aug. 3 that the endowment invested in funds run by the son of a donor, alumnus Donald Graham. The endowment invested in four private equity funds managed by Philadelphia-based Graham Partners, and Donald Graham has donated $62 million to Michigan, according to the school.

“The investment of $102 million with Graham Partners has no association with Donald Graham’s philanthropic giving to the university,” Fitzgerald said, calling Graham a longtime donor “who has supported this institution in many ways over several decades.”

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