Penn State Endowment - and Various Oversight Bodies:

PSUFTG2

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From the article:
In addition, their policy states (page 5) “PSIC meetings are not subject to Open Meeting Laws and are only open to PSIC members and invited guests.”

In light of recent legal actions against the University and the Board - that is a disconcerting contention on the part of Penn State.
Let alone the $2 Billion.

What good things could Penn State do with an extra $2.3 billion in the endowment? – BARRY FENCHAK
Those administrative expenses are borderline criminal. That's outrageous. In this day and age? Might as well use a full service investment house. WOW!
 

PSUFTG2

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Trustees have an obligation to seek out relevant information.
For the most part, that has been an atrocious failure of duty.

Even worse, IMO, is that when making such requests, Trustees (one of them at least, I won't speak for others) are repeatedly refused.

That should raise gigantic red flags.
 
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Trustees have an obligation to seek out relevant information.
For the most part, that has been an atrocious failure of duty.

Even worse, IMO, is that when making such requests, Trustees (one of them at least, I won't speak for others) are repeatedly refused.

That should raise gigantic red flags.
I'm still gobsmacked by those administrative expenses. In 2018-19 they were 2.49%? It doesn't take much beyond heuristic ciphering to come to the conclusion that - with THAT fee on an amount that large - someone was/is feeding mightily at the trough. I barely got beyond that. It was enough. Oh, and why would you just invest in SPY when you can pay someone excessive fees to demonstrate their ability to underperform it while making a huge payout for themselves?
 
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PSU Mike

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Sorry, not a lot of time to find the details. Barry, is there an element of the University choosing investments that meet some vague social criteria that is an element of the advisory fees? I’m not saying it justifies that gap with reasonable fees, but do we pay additional advisory fees and possibly get lower than market performance - the double hit?
 

DELion

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Not only is the university endowment being mismanaged, the BOT is also failing in its oversight role. Active management will not beat the market over the long term as anyone with good financial training knows. There is no excuse for such a drastic increase in management fees. The BOT seems to be rubber stamping things as usual. In addition, the BOT approved use of ESG criteria this year for management of the endowment. That injects politics into the process and potentially alienates half of the donor base. I personally ended all donations to the university as a result. When I questioned another university that I donate to as to whether they were employing ESG investing for their endowment, they responded that no they were not and that it would be a breach of their fiduciary obligations. Penn State has gone off the rails - major reforms are needed. But i'm not holding my breath.
 

PSUFTG2

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Sorry, not a lot of time to find the details. Barry, is there an element of the University choosing investments that meet some vague social criteria that is an element of the advisory fees? I’m not saying it justifies that gap with reasonable fees, but do we pay additional advisory fees and possibly get lower than market performance - the double hit?
Mike: DELion covered that issue, accurately.
 

PSU73

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I'm not making any suggestion that would support the University's data, just asking a question that came to mind.
Assuming some amount of this Fund is based on the University receiving donations using the "Charitable Gift Annuity" plan, how would they account for the portion paid to the donor while they were still alive?**
{as an aside, I worked at a chemical manufacturing plant in my early days and a guy there who was in charge of the barge fleet (insert your own mental picture) always said "Figures lie and Liars figure".

** as a financial guy I can come up with a couple ways that I would represent any "return of the contribution", (should there be any) to the donor. However, I don't know what the Reporting Standards would be and I'm too long retired to try and search for it. In any case, the others that we compare ourselves to have similar programs I'm sure.

Barry, I commend your consistent effort to seek transparency and establish comparable standards for the University. I have to believe that you are by far the hardest working within that group of 'volunteers'.
 

TiogaLion

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From the article:
In addition, their policy states (page 5) “PSIC meetings are not subject to Open Meeting Laws and are only open to PSIC members and invited guests.”

In light of recent legal actions against the University and the Board - that is a disconcerting contention on the part of Penn State.
Let alone the $2 Billion.

What good things could Penn State do with an extra $2.3 billion in the endowment? – BARRY FENCHAK
I thought I'd post the article you referenced above regarding Open Meeting Laws. So, they state the meetings aren't subject to Open Meeting Laws but I suspect that is just false. Will the spotlight PA lawsuit cover this nonsense?

It's nice to see Brandon Short and Barb Doran are on the committee. :rolleyes::rolleyes::rolleyes:😭


 

Catch1lion

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Any casual investor knows ESG is just a sheet show.
Harvard business review---
To begin with, ESG funds certainly perform poorly in financial terms. In a recent Journal of Finance paper, University of Chicago researchers analyzed the Morningstar sustainability ratings of more than 20,000 mutual funds representing over $8 trillion of investor savings. Although the highest rated funds in terms of sustainability certainly attracted more capital than the lowest rated funds, none of the high sustainability funds outperformed any of the lowest rated funds.
That result might be expected, and it is possible that investors would be happy to sacrifice financial returns in exchange for better ESG performance. Unfortunately ESG funds don’t seem to deliver better ESG performance either.
Researchers at Columbia University and London School of Economics compared the ESG record of U.S. companies in 147 ESG fund portfolios and that of U.S. companies in 2,428 non-ESG portfolios. They found that the companies in the ESG portfolios had worse compliance record for both labor and environmental rules. They also found that companies added to ESG portfolios did not subsequently improve compliance with labor or environmental regulations.
This is not an isolated finding. A recent European Corporate Governance Institute paper compared the ESG scores of companies invested in by 684 U.S. institutional investors that signed the United Nation’s Principles of Responsible Investment (PRI) and 6,481 institutional investors that did not sign the PRI during 2013–2017. They did not detect any improvement in the ESG scores of companies held by PRI signatory funds subsequent to their signing . Furthermore, the financial returns were lower and the risk higher for the PRI signatories.
Why are ESG funds doing so badly? Part of the explanation may simply be that an express focus on ESG is redundant: in competitive labor markets and product markets, corporate managers trying to maximize long-term shareholder value should of their own accord pay attention to employee, customer, community, and environmental interests. On this basis, setting ESG targets may actually distort decision making.
There’s also some evidence that companies publicly embrace ESG as a cover for poor business performance. A recent paper by Ryan Flugum of the University of Northern Iowa and Matthew Souther of the University of South Carolina reported that when managers underperformed the earnings expectations (set by analysts following their company), they often publicly talked about their focus on ESG. But when they exceeded earnings expectations, they made few, if any, public statements related to ESG. Hence, sustainable fund managers who direct their investments to companies publicly embracing ESG principles may be over-investing in financially underperforming companies.
The conclusion to be drawn from this evidence seems pretty clear: funds investing in companies that publicly embrace ESG sacrifice financial returns without gaining much, if anything, in terms of actually furthering ESG interests.


 

PSUFTG2

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Any casual investor knows ESG is just a sheet show.
Harvard business review---
To begin with, ESG funds certainly perform poorly in financial terms. In a recent Journal of Finance paper, University of Chicago researchers analyzed the Morningstar sustainability ratings of more than 20,000 mutual funds representing over $8 trillion of investor savings. Although the highest rated funds in terms of sustainability certainly attracted more capital than the lowest rated funds, none of the high sustainability funds outperformed any of the lowest rated funds.
That result might be expected, and it is possible that investors would be happy to sacrifice financial returns in exchange for better ESG performance. Unfortunately ESG funds don’t seem to deliver better ESG performance either.
Researchers at Columbia University and London School of Economics compared the ESG record of U.S. companies in 147 ESG fund portfolios and that of U.S. companies in 2,428 non-ESG portfolios. They found that the companies in the ESG portfolios had worse compliance record for both labor and environmental rules. They also found that companies added to ESG portfolios did not subsequently improve compliance with labor or environmental regulations.
This is not an isolated finding. A recent European Corporate Governance Institute paper compared the ESG scores of companies invested in by 684 U.S. institutional investors that signed the United Nation’s Principles of Responsible Investment (PRI) and 6,481 institutional investors that did not sign the PRI during 2013–2017. They did not detect any improvement in the ESG scores of companies held by PRI signatory funds subsequent to their signing . Furthermore, the financial returns were lower and the risk higher for the PRI signatories.
Why are ESG funds doing so badly? Part of the explanation may simply be that an express focus on ESG is redundant: in competitive labor markets and product markets, corporate managers trying to maximize long-term shareholder value should of their own accord pay attention to employee, customer, community, and environmental interests. On this basis, setting ESG targets may actually distort decision making.
There’s also some evidence that companies publicly embrace ESG as a cover for poor business performance. A recent paper by Ryan Flugum of the University of Northern Iowa and Matthew Souther of the University of South Carolina reported that when managers underperformed the earnings expectations (set by analysts following their company), they often publicly talked about their focus on ESG. But when they exceeded earnings expectations, they made few, if any, public statements related to ESG. Hence, sustainable fund managers who direct their investments to companies publicly embracing ESG principles may be over-investing in financially underperforming companies.
The conclusion to be drawn from this evidence seems pretty clear: funds investing in companies that publicly embrace ESG sacrifice financial returns without gaining much, if anything, in terms of actually furthering ESG interests.


(FWIW: 'ESG" was not a prime topic in the report on the endowment, that I just wrote. But it is an important topic moving forward)

The ESG bit was added to the PSIC just a year ago (as DELion pointed out earlier)

When it was time for a vote, Myself, and Don Cairns and Valerie Detwiler (both Ag Trustees), voted NO.

We were out-voted 29-3

My Comments that day:
  • “This is commonly referred to as ESG, or Environmental, Social, and Governance investing. Adding the sentence citing “social and environmental considerations” to the existing language of “The University’s funds will be invested to achieve maximum return with an acceptable degree of risk” may seem like a clear phrase, but it is not. Many on the Board seem to think it does not indicate any change at all to the existing investment policy. I don’t believe that is accurate.
  • “To someone like myself, who works in the investment management field, considering other factors aside from pure ‘financials’ is common and prudent. For example, 10 years ago a manager considering an investment in TESLA would certainly, if looking solely at their financial statements, not make such an investment (TESLA’s financial positions at that time were awful, compared to its peers). But considering a more robust set of factors, including the consideration that TESLA might become a future market leader in a rapidly growing business, or that TESLA’s leadership team had a strong track record of successful innovation– a prudent investment manager might very well have made that investment.
  • “And I am quite sure, those types of considerations have taken place within Penn State’s investment management.“ We on this Board might think that adding the ESG language is not a change from that type of decision making process. But that is not what ESG investing is. For certain, those who advocate for ESG interpret that language as something very, very different. Including a plethora of interpretations/viewpoints that would significantly restrict investment options in the Penn State Endowment for non-financial reasons. Anytime you incorporate non-financial restrictions, and limit options, you are going to be operating in a sub-optimal fiscal manner.
  • “We need to have our eyes wide open as we consider this change, with regard to what it will mean long-term. None of us, today, can know where this will end up. It could get very expensive with regard to damaging the endowments investment performance – and all the fallout that entails. So, do we want to do this?” For this reason I voted NO.

My comments – Penn State Board of Trustees Meeting, February 17 2023 – BARRY FENCHAK
 
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Rumor has it that Dinky has a small member-ship
Rimshot GIF
 

ChandlerPearce

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Excellent content and i enjoy your updates. Let's be honest....Academia does not have a history or reputation for making excellent financial desicions. The thought of allowing the BOT to direct the PSU endowment is questionable when past results are considered. Unfortunately the PSU BOT operates as Lemmings simply following what others decide without individual intellect. Personally....the entire BOT needs to be overhauled with superfluous positions eliminated.
 
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