Dartmouth Endowment Letter Prompts New Hampshire Review

The New Hampshire attorney general’s office said it’s reviewing an anonymous letter claiming that wealthy alumni of Dartmouth College have mismanaged its $3.4 billion endowment.

The letter, dated Feb. 4, says it’s from a group of former and current faculty and school employees who call themselves “Friends of Eleazar Wheelock,” the founder of the Hanover, New Hampshire-based school, according to a copy posted on Dartblog.com on May 21.

New Hampshire officials “are in the process of looking into this and requesting Dartmouth’s response to the allegations,” Anthony Blenkinsop, a senior assistant attorney general, said in an interview yesterday. He declined to comment further on the letter.

The letter is “riddled with inaccuracies and untruths,” including allegations that the school can’t pay interest on its debt, that it invests money for faculty savings and research grants in hedge funds, and that more than 50 percent of its endowment is invested with trustees, investment committee members or their friends, Justin Anderson, a Dartmouth spokesman, said yesterday in a telephone interview.

‘Explicitly Legal’

“The letter implies that there is something that’s fundamentally improper with colleges like Dartmouth investing with companies or funds that are managed by an alumnus or a trustee and that is just categorically false,” Anderson said. “These investments that are mentioned in the letter are explicitly legal and entirely proper and Dartmouth meets or exceeds all provisions under the law governing such transactions.”

Dartmouth’s endowment was the worst performer in the Ivy League last year. The university said Sept. 28 that investments rose 18 percent for the year ended June 30, boosted by stocks and venture capital and gains across asset classes.

Investment returns helped increase the endowment to $3.41 billion, after more than $40 million in new gifts and transfers, partly offset by distributions, Dartmouth said.

The letter accuses a “cabal of external, wealthy alumni” of a “quiet takeover” of the college by borrowing heavily in the tax-exempt marketplace and enriching themselves by taking “gargantuan fund management fees” through investments that they manage and own, abusing the school’s nonprofit status.

Interest Rate Swaps

The letter says the college engaged Lehman Brothers Holdings Inc. in six interest rate swaps over seven years whose value has dropped to more than $200 million from $550 million -- losses the writers say aren’t included in the school’s financial statements.

The letter also says that more than 50 percent of the endowment is invested with trustees, investment committee members or their friends, and that the college didn’t report investments in six hedge funds, as much as 40 percent of which was lost.

The letter calls on Governor John Lynch and the attorney general’s office to start a probe and ask the trustees in question to resign “because of their mismanagement and conflicts of interests and that Dartmouth divest itself of its investments in trustee-managed funds.”

Fitch has a AAA credit rating on the school’s long-term debt and noted that the school’s “strong balance sheet liquidity, healthy fundraising ability and diverse revenues,” Anderson said in a statement. Moody’s and Standard & Poor’s have rated the college’s debt one level below their highest investment grade rating, he said.

‘Performance History’

The school’s investment office selects managers for investments based on their “strategy, expertise and performance history,” as well as the endowment’s specific asset allocation needs, Anderson said.

“The successful performance of these investments over many years has been key to providing the necessary financial support to advance Dartmouth’s vital academic mission,” Anderson said. “Had we chosen to exclude these funds as an option for our investment staff simply because of a connection to an alumnus or trustee, our endowment returns would have been lower.”

The initial investments with firms related to college trustees occurred before those people became trustees, and New Hampshire law imposes special requirements to make sure such transactions are conducted on an “arms-length basis” and are in the best interests of the organization, Anderson said.

The school imposes procedures that exceed the requirements of New Hampshire law when it comes to investments with firms managed by trustees or members of the school’s Investment Committee who aren’t trustees, he said.

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