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Editorial: Transparency and the endowment

Brown made the grade for the second consecutive year, scoring an A-minus on the College Sustainability Report, an assessment of environmental practices at hundreds of colleges. Brown's grade was set back slightly by the B's it received in two categories: Administration and Endowment Transparency. Regarding the endowment grade, we would settle for an S.

The endowment's asset allocation — the percent of assets invested in private equity, fixed income securities and other categories — is already available to the public on the Investment Office's Web site. Brown's specific holdings (the list of stocks and other assets owned by the University) are restricted to members of the Corporation and senior administrators. This system has its pros and cons. On the plus side, it prevents students, who often know little or nothing about investing, from weighing in on how Brown should maximize returns on its $2 billion fund. On the other hand, it keeps students from criticizing the University's investments in bad companies.

We're inclined to say that more transparency is undesirable. By any measure, Brown is cognizant of the ethical implications of its investments. Donors with ethical qualms can contribute to the "Social Choice Fund," which is invested exclusively in environmentally responsible companies (although the $25,000 minimum contribution should be lowered) and the Advisory Committee on Corporate Responsibility in Investment Policies advises Investment Office employees on the University's vote as a shareholder in other corporations and funds.

We believe the endowment is transparent enough, but other policies surrounding the Investment Office should be made clearer. We would like to see more information about compensation for the endowment's managers made publicly available, as Investment Office personnel rank among Brown's highest paid employees. In an interview with the Board, Beppie Huidekoper, executive vice president for finance and administration, said the Corporation determines compensation for Investment Office employees based on a variety of factors, including salaries for investment professionals at other universities and nonprofits and the endowment's performance relative to other funds. The Brown community deserves to know how those criteria are applied.

Investment officials' incentives are determined, in large part, by how they are compensated. According to Huidekoper, the Investment Office's top earners receive a substantial portion of their pay in deferred compensation that is tied to the endowment's performance over a period of three to five years. Deferred compensation gives the University an opportunity to penalize bad investors (employees who lose their jobs do not receive it), and gives employees with a good track record an incentive to stay at Brown.
We believe the University should defer compensation for its investment professionals over a longer timeframe and increase the proportion of compensation that is deferred. Of course, Brown has to remain competitive with other institutions in order to attract top talent, and the University should pay Investment Office employees more in order to offset the larger risk. By deferring compensation, and thereby paying employees in proportion to the endowment's performance, Brown would ensure that its employees always make long-run growth their top priority.

Editorials are written by The Herald's editorial page board. Send comments to editorials(at)


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