The $10.9 billion University of Michigan endowment has responded to news reports citing potential conflicts of interest at the foundation, including allegations that as much as $4 billion of the endowment is invested in funds whose executives are major donors to the university.
According to the Detroit Free Press, investment firm executives donated hundreds of millions of dollars to the University of Michigan, while the university invested as much as $4 billion in those companies’ funds. The newspaper also said that more than $400 million of that amount was sent into funds managed by three alumni who advise the university on its investments.
Reports from the Free Press also suggested that the university attempted to bury an internal audit report that found problems with the endowment’s management dating back to 2014, including “a lack of proper oversight,” and employees accepting luxury gifts and high-end travel from fund managers. The newspaper also said auditors questioned business-class flights for staff, as well as outside work done by the university’s CIO.
“The Detroit Free Press has raised a number of questions related to the University of Michigan Investment Office,” said the University of Michigan in a release, which added that several university leaders have given interviews and shared background information in an effort to respond to the questions raised about conflicts of interest.
“Free Press reporters obtained a copy of very preliminary observations made by the University Audits team in 2014,” said the university. “This preliminary work was never completed, after it was determined that University Audits did not have the expertise to review the institution’s investment activities.”
In its defense, the university said there have been five external audits of university finances since 2014, and “none has found any concerns with investment operations.”
It also said that “many of the initial observations” made in the audits in 2014 were misunderstandings or inaccurate.
“The preliminary observations from University Audits represent the very early work that is part of the normal process,” said the university, which added that it is standard operating procedure that the Office of University Audits shares some initial observations and then meets with Michigan’s investment office to clarify those observations before proceeding.
“In this case, University Audits decided they did not have the expertise to complete the audit and abandoned this project very early in the process,” said the university. “It would be extremely unfair to report those very early observations. Many of them are not accurate or reflect misunderstandings of investment office processes.”
The university also said that it has hired PricewaterhouseCoopers to conduct a review of investment operations and procedures, the results of which are expected by the end of June. The scope of the review includes an assessment of university-identified business processes, controls, and related transactions in the areas of governance, due diligence, and documentation for investments; authorization and funding of commitments; conflict of interest; and conflict of commitment documentation, including participation on boards and other outside entities and related compensation.