Dartmouth Told to Disclose Fees
Published in print on August 3, 2011
By Rick Jurgens, Special to the Valley News
Hanover -- New Hampshire's top regulator of nonprofit organizations has told Dartmouth College that it must publicly disclose fees paid to Dartmouth trustees whose firms manage investments for the college.
The colleges annual filing with the Attorney Generals Charitable Trust Unit must disclose the specific amount of the board members pecuniary benefit from each investment, unit director Anthony Blenkinsop said in a letter dated July 26.
Dartmouth received the letter, was reviewing it and would of course comply with the requirements of the law, spokesman Justin Anderson said in an email response to questions.
Dartmouth, with the nations 22nd largest university endowment, has hundreds of millions of dollars invested in firms owned or managed by members of Dartmouths Board of Trustees and its investment committee, according to the colleges public filings and nonpublic information reviewed by the Valley News. But the colleges public filings dont detail the fees paid to those firms or how those fees are calculated.
Now, those fees will have to be disclosed to the public, according to Blenkinsop, who said he wrote Dartmouth General Counsel Robert Donin after a telephone conversation in which Blenkinsop and Terry Knowles, CTU deputy director, provided their interpretation of the statute.
Knowles said the meeting with Donin was scheduled so that Dartmouth could speak with us about their interpretation of the states pecuniary benefits law. After the meeting, Dartmouth Vice President of Communications Roddy Young said that the discussion with the Charitable Trust Unit was initiated by the College as part of our ongoing due diligence effort to assure compliance.
At issue is what constitutes compliance under a 1996 state law that requires nonprofit organizations to record, review, approve and publicly disclose transactions in which governing body members have interests.
In the July 26 letter, Blenkinsop says it was written to clarify this offices interpretation of the scope of transactions that require publication under the pecuniary benefits law. The new clarification drew upon the plain language of this section of the statute when read in conjunction with the statute in its entirety.
In an emailed response to questions, Blenkinsop said that the CTU, which regulates all nonprofits in New Hampshire, would place our interpretation of these statutory sections on our website in the near future.
Martin Gross, a lawyer with the Concord law firm of Sulloway & Hollis, who drafted the statute, said that the state has not been vigilant about potential conflicts of interest among trustees of the states nonprofit organizations.
The CTU is terribly under-resourced, Gross said. It probably doesnt have the capacity to do the level of vigilance that the pecuniary benefits law requires.
Gross said that without enforcement you might just as well repeal the statute and let everybody go back to sleep.
In 2009, according to nonpublic information reviewed by the Valley News, trustee-affiliated firms managed investments that accounted for about 8 percent of the total value of Dartmouths endowment.
Some of the endowment has been invested in hedge funds, which are lightly regulated and allowed to pursue investment strategies that are prohibited to conventional mutual funds.
The colleges stake in hedge funds operated by Lone Pine Capital, a firm founded and led by Dartmouth Trustees Chairman Stephen Mandel, was valued at $124 million in November 2009, according to nonpublic information reviewed by the Valley News. Mandel did not respond to a request for comment.
Other trustee-affiliated investments are limited partnerships, or ownership interests in ventures that buy and sell companies, real estate and securities. The colleges portfolio includes a $10 million commitment to invest in TPG Partners VI, according to nonpublic information reviewed by the Valley News. TPG VI is a buyout fund organized by TPG Capital, a Fort Worth, Tex.-based private equity firm of which new Dartmouth trustee James Coulter is a co-founder and top executive.
Owen Blicksilver, a spokesman for TPG, declined to confirm that Dartmouth was an investor in TPG VI. As a rule, we wont disclose the names of limited partners, he said.
Nonpublic information reviewed by the Valley News showed that in 2009 Dartmouth compensated trustee-affiliated outside fund managers with annual fees ranging from 1 to 3 percent of assets under management. Some of those managers were also entitled to retain as a performance incentive as much as 30 percent of the profits generated by Dartmouths investments.
Jim Rubens, a former state senator from Hanover who in 1996 sponsored the legislation that became the pecuniary benefit law, said that he saw no problem with disclosing fees paid to the trustee-affiliated firms that manage college funds.
Disclosure would help assure that the management fees were commensurate to those paid other managers and justified by the results, he said: If these potential conflicts will not withstand public scrutiny, they shouldnt be doing them.
Dartmouth regularly complies with the provision of New Hampshire law that requires nonprofits to provide public notice of any transaction or investment of more than $5,000 in which a trustee has an interest.
However, the college has not complied with another provision of the law that requires it to make public the financial benefit from any investment or transaction in which trustees have ties or involvement. The law also requires that the list be kept available for inspection by members of the governing board and contributors to the charitable trust.
Gross, the lawyer who drafted the statute, noted that it was passed as an alternative to a more stringent 1994 law that aimed to prevent conflicts of interest by prohibiting nonprofits from engaging in any transactions with firms in which trustees had interests.
The key to getting the law changed, and to provide more flexibility, was the element of disclosure, he said.
Dartmouths failure to comply with the disclosure requirement was reported on May 8 by the Valley News, which noted that the colleges public notices of transactions in which trustees had interests typically disclosed the amount of the investment, but not the amount of the financial benefit the fees collected by the trustees firm.
Prior to the July 15 meeting, the CTUs Knowles said it was called to address issues in the May 8 Valley News story.
After that story was published, Donin, the Dartmouth attorney, wrote to the Valley News that the college provided extensive disclosures, and had never had its compliance questioned by state or federal officials. He wrote that Dartmouth would take whatever steps are appropriate to ensure we are fully compliant with all relevant regulations.
Since 2003, Dartmouth has disclosed 15 investments in funds where Dartmouth trustees were owners or managers at the time of the investment. In those transactions, the college committed nearly $224 million from its endowment, which totaled $3 billion in assets at the end of June, 2010, according to the colleges most recent endowment report.
Gross said that he would not be surprised if Dartmouth were reluctant to change its disclosure practices: Getting Dartmouth to change the way it does things is like turning a super-tanker.
Blenkinsop said that Dartmouth had not yet responded to his July 26 letter, so that he could not comment on what actions the CTU may or may not take in the future regarding this matter.