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Duke Panel Recommends No Changes in University’s Investments Disclosure Policies

Report urges focus on wider engagement on specific social investment issues

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Law Professor James Cox, chair of ACIR

In response to a request by a student group for greater public disclosure of university endowment holdings, a university committee has recommended no change be made to current practices regarding transparency. Instead the committee recommended other steps to increase community engagement on issue of responsible university investing.

The report from the Advisory Committee on Investment Responsibility (ACIR) said the request from DukeOpen would not “improve the ability of Duke to address social responsibility concerns” and could “reduce competitive advantages and jeopardize existing relations with [investment] advisors.”

The committee is chaired by James Cox, Brainerd Currie Professor of Law and a nationally known scholar on socially responsible investments.  ACIR praised the student group for its interest in ensuring that Duke investment reflect socially responsible values, but said the group would be better served to use the process developed by ACIR to improve opportunities for “productive community dialogue around investment responsibility.”

One such opportunity is scheduled for next month. ACIR will hold its annual open forum on university investments at 6 p.m. Nov. 9 in the Holsti-Anderson Room at Rubenstein Library.

To help promote the Duke community’s access to endowment information, President Richard H. Brodhead modified the mission of ACIR in 2013. He directed the panel to advise him on investment issues and to monitor trends and activities in investment responsibility that relate to DUMAC, the company that oversees the university endowment.

The request from DukeOpen asked the administration to promote transparency in disclosing university holdings. Although DUMAC does identify long-term targets for different asset groups, it does not make public its holdings in specific investments. This practice is consistent with those of peer institutions and is responsive to the operating practices preferred by its multiple outside investment advisers who oversee the endowment funds on a daily basis.

As part of ACIR’s review, the committee surveyed five peer institutions on their public disclosure policies.  ACIR reports that with one exception, each of the universities had similar disclosure policies as Duke.  The university’s disclosure policies are, it said, “well considered and shared by the other institutions.”

The one outlier institution has a process in which direct equity holdings are revealed on a quarterly basis, but with severe restrictions: The list is available only in an investment officer’s office, cannot be copied or photographed, and doesn’t include holdings in derivatives, which constitute a large portion of the university’s holdings. As a result, that university reports that it receives very few requests to see the list.

“The danger of openness in this case is that it can erode performance,” Cox said. “We have good managers at DUMAC. We’re usually around the top five in returns over a 10-year period.  People are looking to get the kind of returns we’re getting, and one way they can do that is through copycatting our investments. Public disclosure would allow them to free ride on the expertise of our managers.”

Cox said there also is little practical value in public disclosure of holdings. While some asset classes such as real estate are long-term holdings, other key classes are more volatile.

“I found that out with the fossil fuel study,” Cox said.  “During the review I took a look at the holdings, then went back a month and a half later and found that they were very different. The bottom line is that to know what our holdings are on June 30 doesn’t tell you about what they are on July 1.”

Earlier this year ACIR considered another student proposal, asking that the university divest from holdings related to fossil fuels. Instead of divestment, the committee recommended multiple active steps to support investments that promote non-fossil fuel energy and reduction in carbon emissions.

Cox said he is looking to increase community feedback on the endowment, to ensure “that university endowment holdings and practices are consistent with shared values of being a socially responsible investor.” At the same time, ACIR’s most recent report stresses the significant contributions of the endowment’s strong performance to supporting scholarship for students and the research mission of the university.

He said he hoped these discussions would include other practices and policies that constitute university investments. For example, the upcoming ACIR forum will include members of the Duke Sustainability Committee, for a fuller discussion of university investments on the environment, such as carbon offsets.

“We want to broaden the discussion, so the community can see our endowment investments in the full context of everything the university is doing related to a social issue,” Cox said.