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March 03, 2004
Students Call for More Disclosure on University Hedge Fund Investments
    by William Baue

Frustrated by the opacity of universities' hedge fund investments in terms of their social and environmental impacts, students request dialogue with hedge fund firm.

Students at Duke, Stanford, Yale and other universities unveiled a campaign yesterday demanding disclosure on the social and environmental impacts of university hedge fund investments. This campaign comes on the heels of Duke University’s unrelated announcement last Saturday that it has adopted new socially responsible investing (SRI) guidelines that authorize its asset managers to practice shareowner action by such means as dialoguing with companies and filing shareowner resolutions.

The campaigning students, who consider themselves stakeholders, point out that universities have increased the allocation of their alternative investment portfolios to 42 percent, which is up from 28 percent in 2001. This is according to the Commonfund, which pools more than $30 billion in investments for universities and other nonprofit institutions. While hedge funds may increase returns, they also decrease transparency, as they are not regulated by the US Securities and Exchange Commission (SEC) like securities and mutual funds are, with requirements to publicly disclose information.

The students have targeted Farallon Capital Management, which is one of the largest US hedge funds and deals with more than 10 universities. The group sent a letter to Tom Steyer, Farallon's senior managing member, requesting dialogue and disclosure.

"We have always been responsible investors and take that obligation seriously," said a Farallon spokesperson, who could not confirm whether or not Farallon has a policy for assessing the social or environmental impact of its investments.

The student group launched a website documenting what it considers ethically questionable investments conducted by Farallon with university investments.

"I think there's been a growing recognition over the last few years that there needs to be some kind of consistency between universities' social missions and academic values and the actual operations of universities in the realm of investments," said Justin Ruben, a graduate of the Yale School of Forestry and Environmental Studies. Mr. Ruben, who is also a member of Yale's Graduate Employees and Students Organization, co-signed the letter along with 18 other students representing 12 organizations at 5 universities.

"The reason we're addressing Farallon is because we found out about these instances of inconsistency between what we were learning in the classroom about the environment or social justice and the lessons universities are teaching through their actions and investments," Mr. Ruben told

The website provides information about Farallon's Baca Ranch environmental debacle, which prompted Yale to sell the land and donate the profits of $1.5 million (after promising $4 million) to the Nature Conservancy to avoid negative publicity (see related article). It also profiles Farallon's investment in the Cordevalle Golf Club in Santa Clara County, California.

"It echoes the Baca Ranch story: there was local opposition and heavy local lobbying by Farallon to steamroll that opposition, but ultimately Farallon agreed to a series of environmental mitigation conditions that they then disregarded," said Mr. Ruben.

A 1996 memo from the Santa Clara County Planning Commission stipulates that Cordevalle construct ponds as habitat for two threatened species living on the site, the California Tiger Salamander and the Western Pond Turtle. A 2003 California Department of Fish and Game report documents that ponds still had not been built as of July of that year.

"It's clear that we only know about a tiny fraction of Farallon's investments, and a number of the ones we do know about raise a whole set of ethical questions," said Mr. Ruben. "It would be shocking to me if that wasn't true of some of the rest of their investments as well."

"But it is precisely to answer that question that we've asked them for dialogue, because we don't want to presume anything," he continued.

"We intend to respond once we've had a chance to review this," said the Farallon spokesperson.

Similar requests for dialogue with Yale's Office of Investments have been stymied.

"They haven't spoken to us or replied to any of our requests, which is galling, because we're students," said Mr. Ruben.

Yale does not consider itself beholden to disclose information about its investments to student stakeholders, according to Yale spokesperson Tom Conroy.

"Yale doesn't disclose beyond what's required," Mr. Conroy told

Mr. Conroy pointed out that disclosure about the university's investment strategy could adversely affect investment returns, and furthermore that some investments stipulate confidentiality agreements that prevent the university from disclosing investment details.

"We understand that they have concerns about wanting to protect their strategic advantage, but clearly there's a need for more information than we currently have," said Mr. Ruben.


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