It started in 1997 with a real estate deal gone wrong. Yale University’s $10.7 billion endowment had taken partial ownership of a Colorado ranch that had millions of dollars worth of spring water bubbling underground. However, local residents and environmentalists opposed Yale’s plan to tap the water for profits, prompting the ranch’s owners to spend more than $1 million to push the plan onto a state ballot initiative.
The ballot initiative failed. Nobody could claim victory, but both sides ultimately got what they wanted: Yale sold the property for twice what it paid to The Nature Conservancy, an environmentalist group that plans to turn the land into a national park.
After the embarassing incident, Yale’s endowment, which includes a $500 million employee pension fund, decided not to disclose the contents of its investment portfolio unless it was required to by law. That policy hasn’t sat well with Yale’s union, the Federation of Hospital and University Employees (FHUE), which represents about 4,000 of the university’s 7,000 employees. It is putting increasing pressure on Yale to disclose its entire investment portfolio. (It has not filed a suit.)
FHUE is asking for two things: a seat on the endowment’s investment committee that scrutinizes the ethics of Yale’s holdings and full disclosure of the endowment’s entire investment portfolio, says Anthony Dugdale, a research analyst for FHUE. It has not yet secured either.
“The members of the committee are among the leading investment professionals in the nation,” says Tom Conroy, a Yale spokesman. “It would be derelict in its responsibility to future generations were it to allow the short-term interest of one constituency on the committee.”
With only 30% of its assets in stocks and bonds and the remainder in alternative asset classes like private equity and real estate, Yale’s endowment – which has invested in such top-name firms as Kleiner Perkins, Madison Dearborn, and Sequoia Capital (see table below)- reached $10.7 billion in 2001, up from $10.1 billion in 2000, according to the university’s 2001 financial report. The university’s private equity holdings amounted to $2.51 billion in 2001, About 18% of Yale’s endowment is held in private equity, including investments in buyout and venture capital funds, as well as direct investments in private companies.
The dispute prompted Connecticut State Attorney General Richard Blumenthal to urge the university to disclose its private equity holdings. Still, Yale argues against disclosure for competitive reasons. “Others would want to mimic our strategies and successes, and that would lower our returns,” Conroy says.
Meanwhile, the union says it will continue to press. “Greater disclosure would help us know that these assets are accurately priced and that the portfolio’s value is what it’s advertised as,” Dugdale says. “We would like to be able to have confidence that the pension fund’s investments are consistent with the university’s mission. We’re watching the California and Texas cases very closely.”