University of Michigan pours billions into funds run by contributors’ firms

Executives at some of the nation's top investment firms donated hundreds of millions of dollars to the University of Michigan while the university invested as much as $4 billion in those companies' funds, a Detroit Free Press investigation found.

More than $400 million of that amount was sent into funds managed by three alumni who advise the university on its investments. Critics worry Michigan’s approach of investing with some of its top donors, who also help guide the university's nearly $11-billion endowment, creates a conflict.

Robert Jones, an MBA graduate from Michigan who helped lead Goldman Sachs Group's quantitative equity fund management unit before helping to found his own firm, is a member of U-M's Investment Advisory Committee, which advises the university's investment staff.

Jones said in an interview last year his firm does not receive U-M investments. And he said he would worry about the appearance of a conflict of interest if his alma mater chose his firm.

"Maybe it would look like I'm only on the committee to further my company, which is not the case," he said, adding, "it just never occurred to me to ask them" for an investment in his firm because he holds a position of influence.

The committee Jones serves on is a group of wealthy donors — most of whom are alumni — who gather twice a year with a singular focus: growing Michigan's coffers.

Thousands of miles from the Ann Arbor campus, the university's Investment Advisory Committee last May joined top university officials, including its chief financial officer, at dinner for 22 inside the historic bay-view home of San Francisco technology investor Sanford Robertson. The next morning, the group reconvened for a closed-door university briefing and strategy session inside the mahogany-furnished Muir Suite at the Four Seasons hotel.

More endowment coverage:

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♦ How Stephen M. Ross' gift to the University of Michigan ended up in tax court

♦ U-M socks away millions, irking some students

♦ How we did it: Detroit Free Press reporters used public records and interviews to probe a shadowy world of university investing

♦ Endowment roundup: All story links, videos and animation

Records show the University of Michigan invested in companies at the time owned or co-led by at least four of its nine current committee members, including Robertson. On top of working capital, their companies, based on industry practice, likely charged millions of dollars in fees and profit-sharing as a price for managing the university's money; exact figures remain secret.

At the same time, committee members steered donations toward a key decision maker at the university.

The nine members contributed more than $1 million in total to a single fund called the "Chief Investment Officer Endowment Fund," a review of university records shows. The fund is designed to help defray the costs of paying the hefty salary of the university's investment chief, L. Erik Lundberg. Lundberg and his colleagues have great sway over where Michigan invests its billions, including with its donors.

University officials and donors defended the fund and their overall endowment strategy, saying there is no quid pro quo to reward leading contributors with lucrative investments. Industry experts however criticized the setup.

"The conflict is so obvious," said Timothy Keating, the head of a Colorado-based investment firm who has authored reports on endowment performance. "There should be an explicit rule that says if you are on the committee, you can’t get investments."

It's also a pricey endeavor. Lundberg has been the point man deciding where U-M invests its billions for nearly 20 years. He was one of the university's highest paid employees with more than $2 million in compensation in 2016 (His base salary was $690,000 in the same year). Unlike for other top earners, including the university's president and football coach, U-M declined to release the terms of Lundberg's employment, including any financial incentives.

In November, the Free Press sued under Michigan's open-records act for its release. The state court case is pending.

Across the nation, hedge funds, real estate empires and private equity firms receive billions of dollars in direct investments from some of the nation's wealthiest college endowments. But it's unclear how many alumni donors who run such firms get investments from their alma maters.

There's a lot of money in play. College and university coffers are now worth more than $567 billion. Congress grew so frustrated by stockpiling at the wealthy endowments that lawmakers taxed some of the richest, private ones for the first time in December.

Scrutiny for endowments arrives at a tricky time for colleges with especially large savings.

Across the country, college administrators and their supporters defend mega-endowments built on donations from their well-heeled alumni. At Dartmouth College, Oklahoma State University and University of Louisville in recent years, however, critics have questioned investments made by university endowments in companies connected to affluent donors.

Much of the information about how and why universities invest in individual funds remains secret. As part of its investigation, the Free Press spent months interviewing dozens of people and reviewed hundreds of university investment transactions, donation logs and company records. The effort sought to uncover the relationship between how the university raises money and how it invests those contributions.

Among the Free Press' findings:

As the value of the endowment has swelled over the years, the University of Michigan's elected Board of Regents reduced its direct oversight. Much of that power now resides with the university's chief financial officer and its chief investment officer.

For most investments, there is no public debate. The regents have never voted against an investment recommended by staff, according to a review of board minutes stretching back nearly two decades.

The public university lobbied to change the state's open records law to favor the private funds managing U-M's billions. That was to protect information about the performance of funds, including those controlled by top donors to the university.

While U-M hiked tuition, university leaders reduced the rate of how much money it sends from the growing endowment to university operations. If U-M had kept the spending rate at its original level, the university would have roughly 10% more to spend on financial aid and other priorities.

U-M searches for big profits around the world and invests relatively little at home. The university, for example, has invested more with a Pittsburgh-based money manager — $220 million — than it has in any investment funds headquartered in Michigan (U-M has invested only $40 million in a single Detroit-based fund) over the last two decades.

Thanks to Michigan's lobbying effort to change state law, it is a closely guarded secret how well the investment funds run by donors have performed. The university also does not have to disclose the fees U-M is charged to manage its money as well as details about profit-sharing. A nonpartisan state agency warned before the law passed that the change could mean "little public accountability for poor or questionable investment decisions."

And that's the way most universities prefer it.

"The reality is nobody gives away their secrets," Lundberg said in an interview. To reveal the performance of individual investments and the fees paid by universities, he said, would hinder the ability to enter high-yield investment funds and "would come at a tremendous cost."

There is little doubt that U-M has become an elite university and fund-raising powerhouse.

The public university has been the state's flagship institution for higher education for more than 200 years. Its academically accomplished students hail from around the country and the world. Armed with one of the largest and most active alumni bases in the country, it has raised billions of dollars in record-beating campaigns. Its endowment has grown from about $38 million in 1928 to about $11 billion today.

See how an endowment works:

U-M's holdings are the ninth largest in the country, according to a 2017 National Association of College and University Business Officers survey. It is the third largest public endowment behind the University of Texas and Texas A&M systems.

University President Mark Schlissel said in an interview that means it's especially important that U-M follow donors' specific wishes for the school to invest their endowment contributions "and use the interest earned in effect to support what we agree we want to support in perpetuity."

And it's not just Michigan. Experts say big endowments have benefited from a philanthropic culture among college graduates who increasingly expect university officials to score on big bets often available only to large, institutional investors. Endowments also reap other benefits: tax break incentives for donors and tax exemptions for universities on most funds' earnings.

University leaders praise the substantial growth of their endowment, which they say serves as a bulwark against diminishing government support, an uncertain investment climate, and rising operational costs.

Not every college is equal. The nation's endowment wealth is concentrated, with the richest 12% of institutions, including Michigan, controlling 75% of assets held by colleges and universities in 2017, according to an analysis of survey data from the National Association of College and University Business Officers. U-M officials argue, however, that the buying power of their endowment relative to its student enrollment — more than 45,000 — pales compared with schools with far fewer students.

Well-to-do endowments bestow enormous advantages. University leaders in these perches have wide latitude to set their own funding priorities that are out of reach to many other colleges. Less well-off schools are much more dependent upon tuition revenue and public resources.

Investing Michigan's billions is a global enterprise. Its endowment made inroads early in high-growth, high-risk funds in Asia, including China. Recently, a fund manager there, U-M graduate Edwin Wong, caught the university's eye and snared a sizable investment.

Wong is managing partner and chief investment officer of SSG Capital Management, a firm with more than $4 billion in assets under management. Previously, he was a managing director at Lehman Brothers in Hong Kong. Wong holds a bachelor's degree in business administration from Michigan.

In December 2016, Michigan pledged to invest up to $70 million in two Hong Kong-based investment funds run by Wong. (In a recent email , Wong said the university's total investment is $50 million.)

One month after the university's investment commitment, according to donation records, Wong contributed $100,000 to the Stephen M. Ross School of Business Edwin Wong Scholarship Fund. Records show he had never made a significant gift before to U-M, a fact Wong confirmed.

In separate interviews, university officials and Wong said there was no connection between the university's multimillion-dollar investments and the timing of Wong's first substantial alumni contribution.

Lundberg, the university's endowment chief, said he didn't know about Wong's donation. Wong insisted the timing was coincidental.

"In fact, I don't even think the guy that took my money on the alumni side knew that there was an investment or even in discussions with the investment office," Wong said. "So yeah, again, I think anything that would suggest that those things are linked is absolutely wrong."

But those close ties with private fund managers have fueled some critics, including political leaders from bothmajor parties, who ask whether endowments are doing enough to help students at a time of soaring educational debt.

"These huge multibillion-dollar endowments are tax-free, but too many of these universities don't use the money to help with tuition and student debt," then-Republican presidential candidate Donald Trump said at a Pennsylvania campaign rally in September 2016. "Instead, these universities use the money to pay their administrators, or put donors' names on buildings, or just store the money, keep it and invest it. In fact, many universities spend more on private equity fund managers than tuition programs."

Bernie Sanders, the U.S. senator from Vermont who challenged former Secretary of State Hillary Clinton for the Democratic presidential nomination in 2016, told the New York Times that "we do have to do our best to make sure that colleges and universities are cost-effective and that endowments are not used to build 50,000- or 100,000-person football stadiums or for spending a fortune on four-star suites."

So far, Washington has taken limited action. Under the newly signed tax law, only private colleges with large endowments and relatively small enrollment would be subject to the new levy. It's a 1.4% tax on investment income for schools with at least 500 students with assets of at least $500,000 per student. The provision is estimated to raise about $1.8 billion in revenue over 10 years. Lawmakers have estimated it will affect about 30 institutions.

Private schools like Princeton University, the University of Notre Dame and Grinnell College are likely to pay; public schools like Michigan will not.

Meanwhile, colleges and universities park billions of dollars in investment funds largely unavailable to the Main Street investor.

Following a national trend, Michigan has shifted a large chunk of its assets from traditional holdings — stocks, bonds and cash — to alternative assets such as private equity, venture capital and real estate. Those alternative asset funds make money, in part, by charging their investors a fee — usually 2% — and a cut of any profits, usually 20%. Michigan's Investment Advisory Committee has included leaders at Palo Alto, Calif.-based Technology Crossover Ventures and Apollo Global Management, one of the world's largest alternative asset managers with $242 billion in total assets under management.

The shift to higher yield — but often higher risk — funds was driven in large measure by the university's Investment Advisory Committee, which sought "to optimize investment performance and continue modernizing the university's investment model in order to, among other things, better attract donations from alumni and others," Rafael Castilla and William Hodgeson of the university's investment office wrote in a history book published last year. "The idea being that, without outstanding performance, donors might be less inclined to entrust monies to the University's management."

University officials emphasize the committee is only advisory, but membership remains coveted. Committee members said in interviews they have regular access to Lundberg to discuss potential investments.

"I have a hard time managing people who want to be on the committee," said Schlissel, who attends most committee meetings in person or by phone. "So many of our major supporters are kind of queued up saying, 'Look, if there is ever a spot open on this group, I'd love to join it.' "

In one case, it's a family affair. J. Ira Harris, a well-known former investment banker from Palm Beach who graduated from Michigan in 1959, serves on the committee. Among his gifts is a $10-million pledge to endow the school's head football coach position currently held by Jim Harbaugh.

His son is listed in university records as the only unpaid adviser to the committee. Jonathan M. Harris, who runs his own New York money management firm connecting alternative asset funds to investors, declined to comment for this report.

Neither Ira nor Jon Harris has received any compensation from a U-M investment, university officials said. Ira Harris has been a member of the IAC since 1992 and the university has never invested with him.

U-M has made investments into more than 30 companies co-run or owned by donors to U-M, including committee members, according to a review of publicly listed donations, company websites and other documents.

And those firms appear to have an advantage.

Almost 75% of the time, on average, after an initial investment, U-M made a follow-up investment in those companies. That's in contrast to investments made in the more than 250 companies with no donors. They received subsequent university investment on average only slightly more than half the time.

Jones said in an interview last year he would worry U-M investments in committee members' firms like his could be seen as "self-dealing."

"You know it’s more optics than anything because I’m pretty confident that Erik would evaluate the investment on its merits," he said. "We don’t want to give anybody a reason to think otherwise."

In a follow-up interview last week, he amended his comments to say that investments in other members' funds could be appropriate if the funds were sought-after and the field was highly competitive and difficult to enter because of strong demand.

If there were a quintessential example of a mega-donor who also ran an investment fund in part with University of Michigan money, it might be Sanford (Sandy) Robertson, a Bay Area octogenarian who helped pioneer investing in Silicon Valley.

Robertson received his bachelor's degree and master's in business administration from U-M in the mid-1950s, He has served on its Investment Advisory Committee since its founding days in the early 1990s.

Known as a key alumni ambassador for U-M on the West Coast, Robertson co-founded the investment firm Robertson Stephens, where he helped build the financial infrastructure behind the nation's fast-growing technology sector. In 1999, two years after Bank of America acquired the firm, he co-founded Francisco Partners, a $10-billion private equity firm.

"He came back to the university and he convinced the university to invest in venture capital," Lundberg said. "Then he said, we will then help you get into the best" funds.

Robertson has donated $18.4 million to the university. The university's endowment also invested $170 million in Robertson's Francisco Partners. University officials said there was no pay-for-play arrangement, but Robertson acknowledged others may see a potential problem.

"We're a private equity leverage buyout firm and I guess you could say there's a conflict. But they look at what we're doing and it does fit and they invest with some of our competitors," Robertson said in an interview.

U-M spokesman Rick Fitzgerald wrote in an e-mail last week that the "initial fund offered by Francisco Partners was highly sought after and generated twice the volume of investor interest as needed and did not need U-M as an investor. The university was able to participate thanks to Sandy Robertson."

Robertson hosted the May dinner at his home for his fellow Investment Advisory Committee members and U-M officials and paid for the meal, officials said.

"The dinner was in honor of a U-M investment staff member who celebrated her 30th anniversary with the university that day and had announced her plans to retire, making this her last meeting with" the Investment Advisory Committee, Fitzgerald wrote.

The cost to the university of the rooms at the Four Seasons for 15 people was $10,189, according to the university. The cost of meals at the hotel was $4,258 after the Robertson dinner.

“U-M receives a significantly discounted rate for the use of facilities at the Four Seasons Hotel, because the university is an investor in the fund that owns the Four Seasons,” Fitzgerald said.

In an interview, Robertson recalled that it was his idea to have committee members set up a special fund to help compensate the top investment office official at Michigan.

The fund has raised $1.7 million in donations so far since 2014, including from three investment advisory committee members whose current companies received university investments. Among them is U-M alumnus Jay Hoag, general partner at Technology Crossover Ventures, who has been on the committee since at least 2004.

His firm has received $185 million in U-M investments since 1998, more than half coming during his tenure on the advisory committee, records show. During the same period, he contributed more than $2.2 million to Michigan. He pledged to give $300,000 specifically to the chief investment officer endowment fund, according to an April 17, 2014 letter to the university.

He did not return several calls for comment.

Robertson sounded surprised when asked whether helping to compensate the very university officials who decide whether to invest in his company could be a conflict.

"Ooh, I never thought of that." he said.

He said the issue of a potential conflict of interest was never raised by university officials with him.

"I've always said, if I'll figure out any percentage that I might make personally from what Michigan invests, I would make sure I would give back to the university," he said. "But nothing formal about that."

At Michigan, some donors like Samuel Zell oppose the idea of funding the university's endowment, preferring to give directly to fund today's needs.

One of the most iconic figures in the world of American real estate, Zell founded a property investment company that gave birth to modern real estate investment trusts. His businesses eventually grew into an empire spread across several industries including finance, transportation, energy and media. His controversial ownership of the former Tribune Company ended after the newspaper chain filed for bankruptcy protection in 2008. Zell received both his undergraduate and law degrees from U-M in the 1960s.

In the 1980s, Zell and his business partner sponsored an outside professor to come to U-M to teach about entrepreneurialism. They also poured millions into an effort to buck up students seeking to create their own companies as Zell did during his days on campus. More contributions by Zell were directed to teaching students how to become savvy investors.

"I concentrate on programs that can make a difference. I very strongly believe anyone can write a check and put their name on a building," Zell told the Huffington Post in an interview published in May. "My goal is to create programs that change the way people think and to make a difference in the world."

Zell wrote in a memoir published last year that he prefers to structure his charitable gifts incrementally based on achieved goals marked by transparency, eschewing endowments. Forbes pegs Zell's net worth at $5 billion.

"To make a meaningful impact, a philanthropic program — just like an investment — needs an owner. Someone who has a vision, is paying attention, asking tough questions, challenging, and pushing for more results," Zell wrote in his book, "Am I Being Too Subtle: Straight Talk from a Business Rebel." "That's why I've always hesitated to provide endowments."

Zell however has sought endowment investments from a pool filled by other people's donations.

In July 2015, Zell's family foundation announced a $60-million donor pledge to the university's Samuel Zell and Robert H. Lurie Institute for Entrepreneurial Studies. One month later, U-M invested $64 million in two funds associated with Zell.

In total, the Zell Family Foundation has donated more than $150 million to U-M.

Sometimes, these deals were completed in confidence, thanks to new rules delaying public disclosure and board oversight.

The university made direct investments in Zell-affiliated companies, including $69 million in "Project Ranger." The May 2014 investment took a stake in a portfolio of life insurance policies and it was not publicly disclosed until months after the deal closed. That's because the Board of Regents in December 2013 changed the rules to give the university's chief financial officer the power to jump on a limited number of new investments before disclosing them publicly or receiving the board's approval.

Zell declined repeated requests for an interview.

"First of all, that investment is a great investment. It's a fantastic investment," Lundberg said of Project Ranger. "It has done tremendously well for us and we have paid Sam and his people no money for managing it."

He added that the delayed public disclosure was not only appropriate, but necessary.

"We can't go out ahead of time and tell the world this is what we're trying to do because somebody else (will say), you know, 'That's a great idea and, you know, we'll just pay a little bit more and then we'll take that investment.' "

If U-M officials remain untroubled by special provisions for some donors, Stephen Ross, the university's largest donor, said he worried at one time about his possible sway over U-M's investment decisions.

In the fall of 2016, in the grand atrium of the University of Michigan's business school named in his honor, Ross was feted at a cocktail reception with mushrooms stuffed with venison sausage and cardamom cupcakes topped with rosewater frosting. Large gold-colored scissors were laid out for the ceremonial ribbon cutting. Wine glasses waited to be lifted in a toast.

The lavish occasion mirrored the donors' largess. Ross has pledged $378 million to the university, the largest single benefactor in its history. In addition to founding The Related Companies, which built New York City's Time Warner Center and the under-construction Hudson Yards, Ross is the principal owner of the Miami Dolphins professional football team. His estimated net worth is $7.4 billion, according to Forbes magazine.

By Ross' side was his fellow alumnus and protégé, Related Chief Executive Officer Jeff Blau, who was honored that night for giving millions for a towering addition to the Ross business school.

A top U-M official "came over and put his arm around me and said it was time" to make a large donation, Blau recalled during his Oct. 21 speech at the ceremony.

U-M has invested in Ross' and Blau's company as well.

On Oct. 13, 2011, the university's regents approved a $35-million investment from its endowment into one of Related's real estate funds. On Dec. 18, 2014, the regents agreed to another $30-million investment into one of Related's funds to build multi-family housing in energy-rich regions like North Dakota.

In May 2015, the regents consented to another $35-million investment with Related funds. U-M in March 2016 invested $30 million into a real estate fund sponsored by Related. In October 2016, the university kicked in another $17.5 million for a Related-controlled fund.

The university has never disclosed whether it made or lost money in those funds, or any of the fees U-M paid.

"Stephen is not involved in the fund-raising for Related Fund Management," Ross spokeswoman Joanna Rose wrote in an e-mail this week. "He is not on the investment committee and he does not arrange or attend investor meetings."

In addition to getting more than $140 million in working capital from the university, Ross has sought at least one large tax break, thanks to his donations to the university.

That tax break however was nixed by a federal tax judge in July after Ross attempted to take a 10-1 write-off for a donation made by the real estate magnate and his business associates.

After nearly a decade of legal wrangling, U.S. Tax Judge James Halpern sided with the Internal Revenue Service and disallowed the entire $33-million write-off, which the judge valued at a more paltry $3.4 million. The judge also imposed maximum civil penalties for a "gross valuation misstatement" that could now cost Ross and his partners millions more.

The IRS described it a "tax-avoidance scheme" and called out university officials for aiding Ross' failed effort, a criticism that U-M refutes. Ross' partnership filed a notice in December that it intends to appeal the tax court ruling.

Despite the adverse ruling, university officials accepted Ross' most recent pledge of $50 million, adding he remains a smart bet for endowment investments.

"We don't seek out Michigan people, per se," Lundberg said in an interview. "We want to tap into the successful people."

University Chief Financial Officer Kevin Hegarty added that in the business world, "these are professional people and this is just business. Personal is personal. And they're able to separate the two things."

But Ross in an interview said he knows the connection between wealthy donors and endowment investments can cause unease. When U-M was looking to invest in his real estate company, he voiced concerns about the move.

"It was very funny. I walked in the meeting and it was arranged by someone because they were looking for investments," Ross said. "I said, ‘Hey, look it, I shouldn't be here. I have a conflict because I know having given the gifts, they'd have a hard time saying no.' "

Nevertheless, Ross made a promise to his university backers he thought would assuage those concerns about a potential conflict.

"I said, ‘I can tell you, if you do invest in these funds, that I will give you more money than you would ever give us,' " he said with a laugh.

Asked about the story, Ross' spokeswoman wrote this week that "this meeting was taking place near his office and he popped his head in and said hello and made a joke, he was not in the meeting."

Top U-M officials say their investment decisions are fully vetted by a large professional staff and rely on sound financial judgments without regard to donor's gifts. They cite the university's record of making money much of the time, often beating the S&P 500 stock index.

Profits are plowed back into the overall endowment. Every year, a small percentage of the endowment is paid back through shares to each of the more than 10,000 individual funds, reducing the need for other funding to pay for those programs.

Schlissel said many U-M contributors "will talk to our investment officials and say, 'Hey look, I heard of this great opportunity and you should check it out.' And it's tremendously beneficial. We do the same due diligence on those suggestions that we get from donors that we do from investment people" who every day pitch the investment office.

U-M's chief fund raiser Jerry May said up to 15 donors approach his team every year seeking a way into a university endowment investment.

"So I talked to Erik and Erik said, 'Sure, send them by and be sure to tell them I only make business decisions. But my people will take a look,' " May said in an interview.

May said he doesn't keep track of what happens.

"I want people to give to Michigan not because of what they get," he said.

Schlissel said he doesn't see how more than $140 million the university invested in funds associated with Ross, for example, could have held much sway. Ross is not a member of the university's investment advisory committee.

"To be honest, Steve (Ross) might be worth as much as the University of Michigan is worth. So we're not helping Steve with his business." he said. "We're grateful to him for any advice he might give us."

But much of that advice — and even the consent for investing Michigan's billions — goes on behind closed doors.

The investment office used to provide more detailed reports on its activities. Key fund officials were identified. Strategies were detailed. The performance of funds seeking money from U-M was spelled out.

Today, most of those details have disappeared.

Despite the lack of detail available to the public, university officials say they have a system in place to prevent conflicts of interest.

Those serving on the university's Investment Advisory Committee are eligible to receive U-M investments, according to the committee's charter. "However, members must disclose any financial interest or relationship" they have with any firm with U-M investments or any firm under consideration for one, the charter reads..

Asked for written records of those disclosures, the university said it had none. Fitzgerald, the university spokesman, wrote in an e-mail that "when necessary, those disclosures are handled through conversations with the investment staff."

University regents reached by the Free Press praised the committee and dismissed concerns about potential conflicts.

"I think the university manages that committee very well. I wouldn't ever say they are in this to make money for themselves," said Regent Mark Bernstein, a Democratic attorney from Ann Arbor elected in 2012 who has attended advisory committee meetings. "The investment arena is so highly competitive. We need their help."

Regent Ron Weiser, a Republican from Ann Arbor and one of the top 10 donors to the university, agreed.

“They are running companies that are producing returns,” said Weiser, who founded a national real estate investment firm.

He added he had attended Investment Advisory Committee meetings in the past and none discussed specific investments. "It’s all macro investment strategies — what are the best types of investments.” But two other committee members said in interviews that the committee had discussed specific investment funds.

Weiser, the state GOP chairman who has pledged $64 million to the university, said that he has "given to endowed positions. You do it because you have respect for the person and what they are doing, not for any influence.”

U-M's president said he sees no need to change how it runs the investment advisory committee.

If we "said we would never consider an investment opportunity at the investment house that has a person who is amongst their senior leadership, I'd even be tempted to get rid of the whole committee because these are wonderful targets for the university to invest in," Schlissel said.

It's not easy to find publicly available data on endowments, even for public colleges and universities. Large donors are often spelled out in public records, but millions of dollars from others are listed as anonymous.

In Michigan, there is another complicating factor: a change to the law in favor of secrecy — a move the university lobbied to achieve.

In the early 2000s, private equity and venture capital funds wanted to keep U-M as an investor. But they worried that the state's open records laws would hurt their business.

That's because Michigan's public information laws required the release of details about the fees the investment firms charged and the returns they made. And their rivals knew it.

"Companies were trying to access deeper information about their competitors through us," Cynthia Wilbanks, U-M's chief lobbyist, said in an interview. "We wanted to make sure we addressed those concerns."

So U-M's political team swung into action.

In 2004, they convinced then-state Sen. Valde Garcia, a Republican who served a district between Detroit and Lansing, to sponsor an amendment to the state's investment act.

The bill shielded all records about investments from public disclosure if the university in turn published an annual report that included the name of the investment funds, the total amount of money invested and the investment performance of the endowment overall.

The draft legislation had originally included an exemption for the name of the company, but that provision was pulled after objections by the Michigan Press Association, according to Wilbanks.

"The bill contains no provision for any type of public oversight of how the endowment funds are invested," the nonpartisan state House Fiscal Agency wrote in its summary of the bill. "There would be little public accountability for poor or questionable investment decisions by the fund fiduciaries."

Despite those qualms, there was no significant opposition to the bill. Only U-M testified in committee. The bill passed the Senate on a 33-4 vote and the state House on a 105-1 vote. Democratic Gov. Jennifer Granholm signed the bill into law on April 22, 2004.

The bill's passage has not ended anxiety over public scrutiny inside U-M's investment office.

"Especially in recent years, the public nature of both the approval and notification processes has resulted in various instances of undesired attention from the point of view of investment managers who wish to keep aspects of their fund-raising, strategy or the University's participation, confidential," Castilla and Hodgeson, the authors of the U-M investment history book, wrote.

The University of Michigan has set up endowment funds to offset how much the school must shell out to pay expensive operational costs, including salaries of top employees. The idea is to raise money, invest it and earmark the proceeds to help offset the cost of pricey personnel. Individual funds can pay for everything from the football team's offensive coordinator to a geriatric-medicine professor.

Several years ago, U-M set up a fund to support the man who rules them all.

University officials said the Chief Investment Officer Endowment Fund was designed to recognize Erik Lundberg with an honorary title and to help defer the operational costs of the investment office, including salaries. Some donors said they also feared Lundberg might bolt for a higher paying job and the fund could help encourage him to stay.

The fund will not pay out any proceeds until it reaches its $3-million threshold, U-M officials said. It had $2.85 million in gifts and gift commitments as of July.

Proceeds from the fund will not constitute a raise for Lundberg, they said. His salary will not change because of the endowment support. There is already a "tax" on university investments to pay for endowment management, according to Schlissel, and the fund is just an additional way to lower the overall costs to the university.

"This is consistent with how other endowed positions are handled on the U-M campus," Fitzgerald, the university's chief spokesman, said in an e-mail.

Despite those assertions, it remains unclear exactly how Lundberg makes his money.

The university declined to release details about how exactly it compensates its top investment manager. U-M argued in court papers in January that the formula for Lundberg's compensation is a "trade secret" and the state's Freedom of Information Act "does not require the production of every document in the possession of a governmental entity."

Much of the money in the investment officer fund has come directly from Investment Advisory Committee members who consult with Lundberg. Among them are titans of their industry: former Bain Capital managing director Domenic Ferrante, founding Technology Crossover Ventures general partner Jay Hoag and Bloomfield Hills-based Taubman Centers CEO Robert Taubman, son of deceased mall developer and U-M donor A. Alfred Taubman, who also more than spent nine months in prison for a 2001 price-fixing scandal tied to his ownership of Sotheby's art auction house in New York.

Ferrante, Hoag and Taubman did not return repeated calls for comment.

Some donations came from outside the committee at the direction of university officials.

Donald F. M. Brown, who received his master's degree and PhD from Michigan, died in 2009. In 2014, university records show that his trust donated $493,219 to support the university's library, students in its arts and sciences college and the investment officer endowment fund.

But donation records don't tell the whole tale.

The gift was actually an unrestricted bequest to the university. U-M officials decided where the money should go, including one-third to the investment officer endowment fund.

Other times, donations came from friends of committee members.

University of Michigan graduate John Conlin is co-president at NWQ, an investment management company based in Los Angeles. He donated $100,000 in June 2014 for the Jerry A. May Scholarship Fund and the investment officer endowment fund.

Conlin, who received his MBA from Michigan in 1983, is not a member of the Investment Advisory Committee. But he knows one member well.

Conlin served as chief operating officer, president and CEO at Robertson Stephens, the San Francisco-based boutique investment bank that committee member and donor Sandy Robertson co-founded. "And the two remain close friends," a university spokesman said in a statement. Conlin did not return a call for comment.

From records alone, it can be difficult to see exactly who has donated to the fund.

For example, one company listed as a donor is Pledgeling, a Santa Monica, Calif., start-up designed to facilitate charitable giving. In December 2014, it was listed as a $200,000 donor to support the law school and the investment officer endowment fund. In December 2016, Pledgeling donated another $175,000 to the same two causes.

News articles and other records show U-M graduate Mike Levitt, an Investment Advisory Committee member, was an early, outside investor in Pledgeling.

Levitt is the chief executive officer of Kayne Anderson Capital Advisors, which manages nearly $26 billion in assets for clients. He was formerly a vice chairman with Apollo Global Management. He founded Stone Tower Capital in 2001, which was bought by Apollo in 2012.

His investment firms have long received U-M investments. The university's endowment invested at least $155 million with Stone Tower and Apollo while Levitt worked at those firms, records show.

"The university first invested with his credit fund in 2009 when his firm’s strategy made sense for the university’s portfolio," Fitzgerald, the university spokesman, wrote in an e-mail this week. "The investment had close to a 30 percent return."

Levitt did not return phone calls seeking comment. University officials confirmed that "Levitt used Pledgeling's online portal to send his gifts to U-M."

In another example, Sophia Cheng donated $25,000 in December 2015 to the investment officer endowment fund. In December 2016, she is listed as donating another $25,000 to the same fund. The Free Press was unable to reach the New York woman.

After questions about her to university officials, they confirmed that Cheng's father is James Cheng, a member of the Investment Advisory Committee. In March 2014, he pledged to donate $150,000 to the investment officer endowment fund. Reached by e-mail, Cheng declined to discuss his role on the committee, saying he was a relatively new member. University officials said he joined the committee in 2010.

"As a foreign graduate from almost 30 years ago, I am forever grateful to the opportunities that my Michigan American education had given me," Cheng wrote.

Cheng worked for Morgan Stanley Investment Management from 1988 until 1996 and again from 2006 until 2013, according to his LinkedIn profile. His positions included "lead portfolio manager/CEO."

In November 2002, U-M's regents approved the appointment of Morgan Stanley Investment Management as an investment manager for two international equity assignments, according to its board minutes. U-M in 2012 invested $25 million with a Hong Kong-based Morgan Stanley private equity fund, in addition to $40 million in prior investments in the fund, records show.

"The University did not invest with James Cheng," U-M spokesman Fitzgerald wrote in an email this week. "All the strategies are separate and independent from the team that James Cheng managed in Singapore. He was compensated based on his work managing stocks in South East Asia and did not benefit from U-M’s investment. James Cheng has been retired from Morgan Stanley for many years."

Cheng did not respond to follow-up e-mails asking about the university's investments in his former firm, his pledge and his daughter's donations.

"I don’t know if he’s given any money to the university. Frankly, I don't," Lundberg said of Cheng in an interview. "We found him because we wanted someone who was an Asia expert and China expert and that’s his background."

Experts on endowment management say conflicts among alumni advisers occur, so sometimes sitting on the sidelines is paramount.

"You actually leave the room when the issue is being debated. You don't take part in the discussion ... and you rejoin the meeting after the issue is settled," said William Jarvis, former executive director of Commonfund Institute, which promotes best practices in financial management. "It doesn't completely cleanse it, but it enables people to examine what's going on there and draw conclusions about whether the behavior is proper."

Jarvis, who now works at U.S. Trust, added, "It's very hard. You want to have people on an investment committee or a board who are committed — frequently people who have resources and who have shared them with the institution. But you also want it to look as if it's being run in a way that's fair and objective."

Keating, the endowment expert, said U-M's Investment Advisory Committee members should rotate on and off the board. A member's term is technically five years long, but members rarely leave once appointed.

Laurence Siegel, director of research at the CFA Institute Research Foundation, a Charlottesville, Va.-based nonprofit created to improve the global investment community, said the specific endowment fund set up to offset the cost of Lundberg's compensation creates an ongoing conflict for him and the university.

"What managers is he going to pick — the ones advising him and paying into the endowment that helps the university cover his salary, or some stranger?" Siegel said. "Even if there isn't favoritism being shown, it's the perception of favoritism. It seems like a big risk for a CIO and school to take."

Coming next: How the University of Michigan reduced the share of its endowment it spends every year and what it means for today's students.

Editor's note: A photo caption in a previous version of this story misidentified Scott DeRue, the Edward J. Frey Dean of the Stephen M. Ross School of Business. This story has been corrected.

Contact Matthew Dolan: 313-223-4743 or msdolan@freepress.com. Follow him on Twitter at @matthewsdolan.

Contact David Jesse: 313-222-8851 or djesse@freepress.com. Follow him on Twitter: @reporterdavidj.

Free Press staff members Brian McNamara, Mike Thompson and Kristi Tanner contributed to this report.