DATELINE: January 28, 2009, Chicago
We read a brief story yesterday about the decision of Brandeis University to sell its large collection of contemporary art. Now we have finished reading about the details of the proposed sale in the New York Times and the Boston Globe. Randy Kennedy and Carol Vogel, Outcry Over Plan to Sell Museum’s Holding (Jan. 27, 2008); and Geoff Edgers, Ailing Brandeis Will Shut Museum, Sell Treasured Art (Jan. 27, 2009).
The Massachusetts Attorney General already...
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has put the wheels in motion to review the transaction. We don’t think the AG should stop the sale. Institutions should be free to make basic resource allocation decisions without government interfence. The AG, however, should make sure that sales of individual work comply with donor restrictions. This is one of the roles assigned to state regulators.
The announcement took the art world, alums, and the Brandeis’s board of overseers by surprise. It strikes us as an extremely stupid and short-sighted decision, one which future generations of students will wish never transpired. The sale robs Brandeis of an important asset. It also makes no sense economically, given the depressed art market. The university would be better off borrowing against the collection and selling it in a few years if it plans to go through with the sale; although the university still might be faced with donor restrictions prohibiting pledges of individual pieces. One donor who gave a James Rosenquist drawing to the university’s museum last year told the Globe, “This art was never given to the museum for those purposes…It should be a last resort. I can't understand how Brandeis is in such dire straits."
If the Massachusetts Attorney General wants to investigate something, it should give serious consideration to investigating the trustee stewardship of the university’s endowment. The Times article reports that:
Brandeis faces a deepening financial crisis, with its endowment, once $700 million, significantly diminished.
The Globe carries a similar report, but the Globe's article indicates that Brandeis declined to comment on the extent of the decline in the endowment.
As we pointed out last week, a lot of boards charged with managing endowment appear to have over-weighted their with portfolios with alternative investments and other more exotic investments. We call that swinging for the fences—looking for the highest return possible. The problem is that managing an endowment requires more than just chasing high returns. The board must first define what purpose the endowment serves. It then must develop an investment strategy that tries to fulfill that purpose. In doing so, it must define its risk tolerances and conform investment decisions to those tolerances.
When we see an institution like Brandeis being forced to dispose of what its president referred to as a “jewel,” we have to wonder whether its endowment was properly managed. Were the trustees trying to hit home runs so that they could expand the university’s programs, or were they looking to the endowment to insulate the university’s existing programs and resources from economic vicissitudes? In our view, the latter is the more appropriate focus when it comes to general endowment.
We have seen references in some articles to Brandeis’ alternative investments. For example, a March 4, 2008 article in the student newspaper reports that Deborah Kuenstner, Chief Investment Officer and Vice President for Investment Management, told the paper that Brandeis had a lot of alternative investments. Matthew Brock, Brandeis’ Endowment Return Lower Than Last Year, The Justice. We’d like to know what the asset allocations were.
We hope and suspect that the announced sale reflects the current thinking of the board, but we have to wonder whether the “surprise” element was intentional. Might the way the announcement was handled be part of a concerted effort to shock living alums into accelerating major gifts in hopes of stopping the sale? We can only wonder what role the development office played in orchestrating and structuring the announcement.
In the meantime, we hope the Massachusetts Attorney General takes a close look at Brandeis’ investment practices. There is a risk that there will be no duty of care or duty of prudence if regulators fail to ask questions that make trustees uncomfortable. Given recent losses throughout the philanthropic world, those questions need to be asked. Even though monetary recovery is very unlikely if practices were deficient, state regulators have other tools that they can use to refocus boards.
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