Yale Endowment under union pressure

Yale University has come under attack from trade unions in the US alleging non-disclosure of some of its investments and conflicts of interest involving members of the Investment Committee.

(PrivateEquityCentral.net) Yale University is under fire from its own trade unions, who allege non-disclosure of some of the Ivy League institution’s investments and conflicts of interests involving members of the Investment Committee who are also high ranking executives at major private equity firms.


The Federation of Hospital and University Employees, an umbrella organisation for four unions, have written to the Securities and Exchange Commission asking the regulatory agency to investigate whether Yale violated federal securities laws related to the non-disclosure of investments.


But according to Investments Magazine, in allegations not submitted to the SEC the Federation claims there are conflicts of interest among the top leadership at Yale’s endowment.


The unions pointed out Len Baker, a Yale trustee and member of Yale’s Investment Committee, is a managing director of Palo Alto-based venture capital firm Sutter Hill Ventures.


Antony Dugdale, a research analyst with the Local 34 who wrote the SEC on behalf of the Federation, told Investments Magazine Baker sponsored Sutter Hill’s participation in two new funds, Chengwei Ventures and Golden Gate Capital, before Yale’s decision to invest in both funds. Yale also invests directly with Sutter Hill.


Josh Bekenstein, a member of the Yale Investments Committee since 2000, has been a managing director of Boston-based private equity firm Bain Capital since 1986. The unions allege Yale’s pension fund and endowment invested in many Bain funds.


Yale spokesperson Tom Conroy told Investments Magazine formal conflict of interest rules meant no member of Yale’s investment committee would have been part of a university decision to invest in a company or entity of which he or she was a board member.


Yale’s $10.5bn under management makes it the second biggest academic endowment in the US, behind only Harvard.

“It has come to our attention that Yale University may have violated federal securities statutes by failing to disclose certain relevant information in their 13F filings,” Dugdale wrote on behalf of the Federation.


“In particular, we ask that you investigate whether Yale should have disclosed their holdings in Aviva Petroleum on 13F filings for twelve quarters ranging from 1995-1999,” Dugdale wrote. “This investment resulted in significant losses for Yale.”


The key player in Yale’s relationship with Aviva is John Lee, who served on the board of trustees for Yale and on the Yale University Investments Committee, and was also on the board of directors of Aviva.


The Federation said Lee joined Yale’s board of trustees in June 1993. The following month, sixteen investors signed an agreement to purchase 12.6m shares of a small Texan oil exploration company named Aviva Petroleum for $0.95 per share. The investors included 1,052,631 shares acquired by Yale University, and 1,052,631 shares acquired by Lee Development, controlled by Yale trustee John Lee.


In late August 1993, Aviva announced that Lee was appointed to its board of directors. Two months later, Yale bought another 350,000 shares. By the end of 1994, Yale had acquired another 1.1m shares, increasing its holdings to 2.5m shares, or 8.1 per cent of Aviva, well over the five per cent threshold requiring disclosure.


Aviva was delisted from the London Stock Exchange in May 1999. Lee left the board of Aviva in 1998, and his term on Yale’s board expired in 1999. Lee died in May 2001.


Aviva’s annual report for 2001 still lists Yale holding 2.55m shares, representing 5.04 per cent of the company. On April 17, Aviva shares were trading at their 52 week low of $0.01 per share. At that price, Yale’s original holdings worth over $2m were worth only $25,500, according to Yale Insider. By the time the Federation wrote to the SEC the value of Yale’s stake had improved somewhat to $127,500.


Aviva’s SEC filings list Yale as a consistent holder of 2.55m shares through 2001. However, such holdings do not appear on any Yale 13F filing with the SEC after December 1995.


Yale denied any wrongdoing. “Yale believes it has made all the required disclosures to the SEC regarding Aviva and any other holdings the university has and had at the time,” Conroy said, according to Investments Magazine.