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Seeking Investment Disclosure, Coalition Targets Farallon Capital

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NEW HAVEN, Conn. (–A coalition of students, student organizations and alumni from colleges and universities around the country has launched a campaign seeking greater disclosure of endowment investments in hedge funds.

The coalition’s first target is Farallon Capital Management LLC, San Francisco, a US$8 billion hedge fund whose investors include some prominent university endowments. In a March 2 letter to Thomas F. Steyer, Farallon’s senior managing member, the coalition requested a meeting with Farallon officials in order to “discuss the ethics of Farallon’s investment practices.”

“We believe that we are stakeholders in the investments you make with university money; so, too, are the communities affected by these investments,” coalition members wrote. “… [W]e do not want our universities to profit from investments that harm other communities. We are concerned about the impact some of Farallon’s recent investments have had.”

In its letter, the group asked to discuss with Farallon officials how they determine and weigh the social and environmental impacts of investments and potential investments. They also asked for more disclosure of investment activities.

A Farallon spokesman said, “We received the letter yesterday [March 2] and are currently reviewing it. We have always been responsible investors, and we take that obligation seriously. We intend to respond once we have had a chance to review this.”

It’s likely Farallon officials will have much more to review than the cordially written letter. The coalition also has launched a web site targeting Farallon’s management, investments and investors. Contained on the web site,, is an extensive list of relationships, investments and partnerships coalition members say they find questionable or unethical, among them:

  • A controversial mid-1990s bid to extract and sell water from a Colorado aquifer. Residents of the valley under which the water lay, as well as environmental groups and Colorado politicians, fought against the plan, and Farallon eventually gave up after two statewide ballot initiatives it sponsored to gain control over the water rights failed.
  • Allegations that a Farallon investment manager got an inside track on Russian debt investments and improperly transferred profits from the sale of that debt.
  • Charges that Farallon, as one of four entities sharing ownership of a shoe factory in Argentina, failed to pay the factory’s workers, even after the company began turning a profit.

In two of the above cases–the Colorado aquifer and the Russian debt sales–prominent universities played a role. In the water rights instance, Yale University’s US$11 billion endowment was an investor in the Farallon partnership that attempted to extract and sell the water, according to the coalition’s web site. And in the Russian debt case, the spouse of the Farallon investment manager was a Harvard University professor working in Russia as an adviser to government officials in charge of setting that country’s debt policy.

The coalition includes students at universities such as Duke University, Durham, N.C.; Stanford University, Menlo Park, Calif.; the University of Pennsylvania, Philadelphia; the University of Texas, Austin; and Yale, New Haven, Conn. Many of the students have ties to environmental and social organizations that are active on university campuses, such as the Rainforest Action Network, the Student Environmental Action Coalition, Students Transforming and Resisting Corporations and United Students Against Sweatshops.

The coalition’s spokesman, Justin Reuben, is a Yale graduate student who also belongs to the Graduate Employees and Students Organization, a union representing graduate students at the school. Mr. Reuben said the coalition’s goal is to prompt more disclosure, and ultimately discussion, of how endowment funds are invested.

Mr. Reuben said the coalition members believe universities should invest their endowment assets in socially and environmentally responsible ways. Ensuring that happens has become more difficult, he said, as endowments have invested an increasing percentage of their assets in hedge funds, which tend not to discuss their investments openly, and in some cases do not disclose details even to investors. Yale, for instance, has roughly 25% of its endowment in hedge funds.

Attempts by coalition members to meet with staff members at the school’s investment office have been unsuccessful, Mr. Reuben said, so the coalition has decided to target hedge funds that manage the money.

“I absolutely think it’s an issue of basic corporate responsibility,” Mr. Reuben said. “Farallon is responsible for its actions and for what it does with university endowment money. That means in cases where Farallon is putting together deals and choosing which projects to finance, they bear responsibility for the impacts of those investments and to provide certain kinds of information so we can have an informed discussion and debate as to the appropriateness of those investments.”

Tom Conroy, a Yale spokesman, said the university’s investment office has always made responsible investments and that those investments have been successful enough for the school to draw some 30% of its annual operating revenue from endowment returns. The endowment fund returned 8.8% for the 12 months ended June 30. He said the university discloses its investments as required by law.

“The university endowment is a model in the nation in terms of performance, thanks to its management team,” Mr. Conroy said. “The investment office does a superb job in its mission and performs in an ethical manner.”

He said the investment office has no plans to meet with coalition members.

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