Matthew Dolan and David Jesse Detroit Free Press
Published 8:00 AM EDT Sep 13, 2018
Wealthy alumni who have sway over the University of Michigan’s $11-billion endowment have given thousands in campaign donations to members of the university’s governing board.
A review of state records shows that two members of the university’s elected Board of Regents accepted in total nearly $30,000 in campaign contributions from donors associated with funds receiving U-M investments. In addition, a family who helps guide the university’s investment strategy contributed more than $29,000 to the board’s longest-serving member.
To critics, some of the donations could pose a conflict of interest.
“Something doesn’t have to be obviously illegal for it to be the kind of thing a flagship state university should be 100 miles away from,” Georgetown University law professor Brian Galle said in an interview. “There is a stink to this arrangement, not to say that it’s illegal. It looks like, you know, backscratching at a minimum.”
A university spokeswoman rejected any suggestion that “there has been any wrongdoing on the part of the university or members of our Board of Regents in how we interact with our donors or manage the university’s investments.”
At least one regent is making a change after the Free Press presented its findings.
During a recent interview, Andrea Fischer Newman pledged to return thousands of dollars in campaign contributions from three wealthy businessmen who help control millions of dollars in university investments.
The donations started for Newman when New York developer Stephen Ross contributed $2,000 in June 2010 to her re-election campaign. Sixteen months later, Newman seconded the motion that led to the approval of the university’s $35-million investment in a real estate development fund sponsored by Ross’ firm.
Each time the university invested again — in 2014, 2015 and twice in 2016 — Newman and her colleagues were notified during a public meeting. Newman did not abstain from the vote to approve the investment into Ross’ company, nor did she mention Ross was a political supporter during the other meetings, according to board minutes. The university eventually invested more than $140 million in funds connected to Ross.
Last year, Ross and his wife donated again to Newman’s campaign, maxing out their limit by each contributing $6,800.
The contributions may be permissible under state law, according to experts. U-M’s conflict of interest policy for regents does not directly address campaign donations.
But according to the Board of Regents bylaws, a regent is considered to have a conflict of interest when the regent “has an existing or potential financial or other interest which impairs or might appear to impair the regent’s or executive/senior officer’s independence of judgment in the discharge of responsibilities to the university.” A regent has an obligation to report any suspected conflict to the board’s secretary, according to university policy, and may agree to abstain from voting on the matter.
Newman’s failure to disclose her financial connection to Ross struck several experts as improper under the university’s own rules.
Susan N. Gary, a law professor at the University of Oregon specializing in nonprofit issues, wrote in an email that after reading the university’s ethics policy, “it looks like the Regent failed to disclose the interest and should have. It’s hard to know whether the investment choice was the best option available, and whether the interest affected the Regent’s decision to vote in favor of the investment.”
Newman acknowledged in an interview that the $24,900 in total donations from Ross, his wife and two other contributors connected to U-M investments could be seen as problematic.
“The entire Board process has been completely public and transparent.” she wrote in an Aug. 30 statement after the interview. “And yet I am keenly aware that perception matters in public life, especially in this time of declining trust in social institutions. Which is why I returned the donations made by Sandy Robertson, Stephen Ross (and his wife, Kara) and Don Graham.”
At U-M, thousands of donors — many of them alumni — count on the university regents to help safeguard hundreds of millions of dollars in contributions. Michigan’s total endowment is the country’s third-largest among public universities.
Experts say it can be a conflict when a university invests with donors and campaign contributors because the public has little idea whether an investment associated with a donor is the best possible choice. For example, an anti-corruption law in Michigan already prevents public pensions from investing with certain political contributors.
Following a series of Free Press articles earlier this year, regents adopted new policies to reduce the potential for conflicts of interest. They include providing additional information to the public about alumni advisers running some of its investment funds. The regents also shut down a $2-million endowment fund designed to help compensate the U-M chief investment officer, which had been paid for in part by donors who receive university investments.
But U-M did not say it would stop investing in funds run by some of its largest contributors. Executives at some of the nation’s top investment firms donated hundreds of millions of dollars to Michigan while the university invested as much as $4 billion in those companies’ funds, according to a Free Press analysis of thousands of university records stretching back two decades.
Despite some moves toward greater transparency, the university has also floated an idea to pull investment decisions from public meetings.
The university said in August the regents would consider giving up their power to approve all new investments made from the U-M’s endowment. Under the proposal, the university’s governing board would transfer that authority to U-M’s chief financial officer and chief investment officer. The board’s role would be reduced to establishing broad guidelines for university investments.
Such moves, outside auditors told the university recently, would place U-M more in line with its peers.
Opposition has already emerged. Newman said in a statement this month that she believes the eight-member regents board would not approve the proposed change outlined in August by Regent Katherine White.
“The University of Michigan is a public university and, as such, should be transparent.” Newman said. ”The current method for approving investments has served us well and does not need to change.”
U-M spokesman Rick Fitzgerald said the university would still disclose the individual investments at its board meetings even if the changes were approved. The regents are scheduled to hold their next public meeting Sept. 20, but Fitzgerald said the issue would not be on the agenda.
In some ways, a proposed change could reduce the chance for conflicts for regents who accept campaign donations from a variety of contributors with links to university operations.
But if the deliberations become more secretive and out of the hands of the university’s governing board, it could also reduce public oversight over the U-M’s investment office.
For most investments over the last 20 years, there has been no public debate and the regents’ approvals have been unanimous, according to a review of U-M board minutes.
Regents do occasionally abstain from voting by citing a potential conflict.
“Disclosure is the cornerstone of the campaign finance laws in this state,” said Regent Andrew Richner, R-Grosse Pointe Park, who has abstained on some votes because of his work as a private attorney. “It is the best approach to ensuring the integrity of the political process.”
Newman has also recused herself from at least one investment vote in the past. Another time, in November 2002, she said at a public meeting to discuss a $30-million investment that “she has a personal relationship with this fund and was not involved in the transaction in any way,” according to board minutes.
Richner and Newman, both Republicans, are running for new eight-year terms in November.
It’s unclear how deeply involved regents are in individual investment decisions made through U-M Chief Investment Officer Erik Lundberg.
“I don’t remember any direct pressure from the regents to go with one fund or another, but everyone knew there were certain funds that had ties to Erik and to the regents and were the university’s big donors,” a person familiar with the U-M investment office said in an interview.
“It was all a tight circle — everyone helped everyone,” said the person, who spoke on the condition of anonymity for fear of professional repercussions. “It just was all the power brokers (at U-M) doing business with each other and no real checks on it.”
More broadly, much of the system is secretive by design.
The regent’s Finance, Audit and Investment Committee as well as the university’s investment advisory committee — made up mostly of alumni — meet behind closed doors. There are no publicly available minutes of their proceedings. U-M also lobbied to change state law in 2004 so the performance of individual investments — investment returns as well as fees and profit-sharing — remain hidden from public view. State officials warned about the outcome before the law passed.
“The bill contains no provision for any type of public oversight of how the endowment funds are invested,” the nonpartisan state House Fiscal Agency wrote then in its summary of the bill. “There would be little public accountability for poor or questionable investment decisions by the fund fiduciaries.”
The regents also have the power to decide how much of U-M’s billions are spent or saved every year.
In 2010, the regents decided to cut the university’s endowment spending rate, a move that has cordoned off an estimated $30 million a year by one expert’s analysis. That likely means the university has more money to invest — often with some of its biggest donors — and fewer of those dollars today to spend to lower tuition, hire more faculty or update classrooms. University officials said despite the rate cut, spending from the endowment has actually grown as its size has swelled.
A Republican from Ann Arbor, she received her bachelor’s degree with honors from U-M in 1979 before receiving a law degree at George Washington University.
She worked in lobbying as senior vice president for government affairs for Delta Air Lines from 2008 until her retirement last year. Prior to her airline career, she was a law partner at Miller, Canfield, Paddock, and Stone from the late 1980s until the mid-1990s. She has also served on a number of federal government panels.
Newman has also been a generous donor. She and her husband, Frank, pledged to donate $1 million to support the university’s theater department, according to a 2017 university announcement.
She was elected to the Board of Regents in 1994 and re-elected in 2002 and 2010.
Newman is one of the board’s more influential members and has deep ties to the state Republican Party. In recent years, she has regularly voted against tuition hikes, including this year, when she was the lone no vote against the 2.9-percent in-state tuition increase.
“Where I continue to have difficulty are tuition increases that make it more and more difficult for the middle class to access a Michigan education,” she said during the June board meeting.
Last month, the state GOP endorsed her in this fall’s election for another term. She has raised more than $500,000 in her campaigns, the third-highest total since 1996 after regents Ronald Weiser and Mark Bernstein.
A number of regents are independently wealthy, contributing tens of thousands of dollars to their own campaigns. But a review of more than 5,500 campaign contributions spanning more than two decades found Newman also has substantial support from those who control and influence where U-M invests its billions.
To complete the analysis, the Free Press compared campaign finance records from 1996 through this year to a database the newspaper created of more than 800 U-M investment transactions since 1998. The review also included thousands of individual donations made to the university, including by the alumni who help run those investment funds.
Newman said donations from investment fund leaders did not adversely affect her board duties at U-M.
“As a Regent of the University of Michigan, I make decisions based solely on what is best for the institution. I have always been transparent and accountable to the people of Michigan,” she said in a statement to the Free Press.
Donations from the Ross family are not the only instance those connected to U-M investments have put money into regents’ campaigns.
In March, technology investor Sanford Robertson, whose firm has managed millions of dollars for U-M, donated $6,800 to Newman’s campaign.
Robertson, a U-M alumnus, is co-founder of Francisco Partners, a $10-billion private equity firm based in San Francisco and London. He has served on the U-M Investment Advisory Committee for nearly three decades. Robertson has donated $18.4 million to the university.
The university invested in him as well, sending a total of $170 million to funds run by Francisco Partners. The investments first started in April 2000 when Newman and her colleagues first voted to invest $20 million with Francisco from university funds. Robertson did not respond to a request for comment.
Newman also received $2,500 last year from Don Graham, a Pennsylvania industrialist whose son manages funds in which U-M has invested tens of millions of dollars. The contributions came after Newman and other regents voted in October 2004 to invest up to $25 million with Graham Partners — an investment firm spawned from the Graham Group founded by Don Graham.
In total, U-M’s endowment has invested $102 million in Graham Partners. Graham and his family foundation have also donated more than $60 million to Michigan, including paying for half of the estimated $800,000 cost of the Wolverines’ trip to France last spring, organized by football coach Jim Harbaugh. The Grahams did not respond to a request for comment.
“I recently learned that I received campaign donations from two people whose firms managed University of Michigan endowment investments, and one person whose son managed university investments,” Newman said. ”I didn’t realize there was a connection between these unrelated and distant events until informed by the Free Press.”
The investments, she said, were approved by the full board in public and most of the publicly disclosed donations came after those votes.
“No reasonable person who understands the university investment procedures could draw a connection between a unanimous decision almost two decades ago and a modest show of campaign support in recent years,” Newman added.
In addition to giving back the campaign contributions, Newman said in an interview that she will abstain from future votes involving investments with connections to her financial supporters.
Between 2014 and 2016, Don Graham also contributed $11,800 to the campaign for Weiser, who was not elected until 2016. U-M has not made new investments with Graham Partners during Weiser’s tenure, according to board minutes. The two share a suite at Michigan Stadium, Weiser said in a brief conversation.
Other regents — Bernstein, White, Michael Behm, Shauna Ryder Diggs, Denise Ilitch — did not return requests for comment.
U-M has invested more than $140 million in five funds through Related Fund Management, a company federal filings show is principally owned by Ross.
Ross’ spokeswoman Joanna Rose told the Free Press that Ross has had little direct involvement in the investment funds.
“He has no role in investment decisions or fundraising and does not sit on any investment committees for Related Fund Management, therefore such donations are in compliance with all applicable laws,” Rose said.
It’s hard to know whether investing with Related funds was a smart bet for Michigan. The university and company declined to say how the funds performed or the terms of the deals.
Unlike publicly traded companies, Related real estate funds do not publicly release their financial performance in regulatory filings. Based on an industry standard fee of 2 percent annually, it is likely that U-M paid Related’s funds millions of dollars in fees in addition to 20 percent of the undisclosed profits the funds earned.
One private market research firm found that the performance of the funds associated with Ross has been a mixed bag as measured against its competitors.
One of the five funds — Related Real Estate Recovery Fund — has performed in the top 25 percent of real estate funds in the United States, according to the private data market firm PitchBook. The fund, which targeted distressed real estate projects in major urban markets, included a $35-million investment from U-M, records show.
The performance however fell somewhat with one of the more recent funds known as Related Real Estate Fund II, which was among the bottom half of similar funds. The PitchBook data does not include performance rankings for the three other funds, in which U-M has invested a total of $77.5 million.
“We gather our data from a variety of public sources and direct outreach to the companies. If we’re unable to find it via public sources, we leverage corporate and regulatory filings, and a proprietary formula,” PitchBook spokeswoman Abby Rankin said. She added that PitchBook also reaches out to the companies it tracks “for verification and additional information.”
Related’s Rose said the company does not release data to third-party commercial vendors. She added that parts of the data provided by Pitchbook were incorrect and unreliable.
She said Related Real Estate Recovery Fund ”performed extremely well delivering value for investors.” Any estimates or purported data on Related Real Estate Fund II “is pure speculation” because the fund is only half invested and its assets have yet to come to their full value.
J. Ira Harris, a well-known former investment banker from Palm Beach who graduated from Michigan in 1959, and his family have been multimillion-dollar donors to U-M and contributed nearly $30,000 to Newman’s campaigns over the years.
For decades, Harris has served on the U-M investment advisory committee, which helps shape the university’s endowment strategy. His son, Jonathan M. Harris, who also graduated from U-M, runs his own New York money-management firm connecting private equity, venture capital firms and other alternative asset funds to investors, including endowments. Jonathan Harris also serves as an unpaid adviser to the same U-M investment committee.
Neither Ira nor Jonathan Harris has received a U-M investment, university officials said. The Harris family did not return requests for comment.
Newman said she has not discussed U-M investments with the father and son and the Harris’ donations have not influenced her investment decisions as a regent.
“We have a shared love of the university,” Newman said in an interview. She added that she has been friends with the Harris family since the 1980s and before she began serving as a regent.
Top U-M administrators said they remain confident in the management of the university’s growing endowment, which posted a 13.8-percent investment gain for the fiscal year ended June 2017.
“We are proud of the successful performance of our endowment and the ethical manner in which we manage our investments,” U-M spokeswoman Kim Broekhuizen said in the statement.
She added that the university is ”grateful to our donors for their generosity and support of the university, and we take very seriously our responsibility for investing their contributions.”
“The University of Michigan’s investment practices are fundamental to the university’s success, and the sole reason we choose investments is the likelihood of good returns balanced with acceptable risk. This is true in every case. The Free Press has tried repeatedly to make this about something else, but it simply isn’t true.”
Of her own actions, Newman said her voting record as a regent and her campaign contributions have always been available for public review.
“Every vote I made as a regent has been public and in the sole interest of the university,” she said. “The donations had absolutely no influence on my vote.”
But critics argued that Newman should have at least disclosed the financial relationships at public meetings and sat on the sidelines instead of voting.
“At a minimum, this looks bad. This looks like pay-to-play,” said Lloyd Mayer, a law professor at the University of Notre Dame and an expert on duties for board members. “I make a campaign contribution. I get a lucrative contract with the university.
“Even if everything was aboveboard, it looks bad.”
Free Press staff writer Kristi Tanner contributed to this report.
Matthew Dolan is an investigative reporter at the Free Press. Contact him at 313-223-4743, [email protected] or on Twitter at @matthewsdolan.
David Jesse is a higher education reporter at the Free Press. Contact him at 313-222-8851, [email protected] or on Twitter at @reporterdavidj.
To read the complete series on the U-M endowment, or view other Free Press investigations, go to www.freep.com/news/investigations.
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