Appointment of PRINCO

What is PRINCO?

Princeton University Investment Company (PRINCO) is a part of Princeton University. It is responsible for the management of the University’s endowment. PRINCO was recently named the 2006 Endowment of the Year for its continued excellence in investment management. [Document: October 24, 2006 Press Release (.pdf)]

For an overview of a number of the key issues in this dispute, see Robertson v. Princeton -- Perspective and Context, prepared by Victoria B. Bjorklund. Ms. Bjorklund is a member of the law firm Simpson Thacher & Bartlett LLP, which, together with Lowenstein Sandler PC, serves as litigation counsel to Princeton University and the individual defendants in the Robertson litigation.

Why did the Robertson Foundation vote to engage PRINCO as its portfolio manager for the Foundation?

For more than twenty years, beginning with its formation in 1978, the Robertson Foundation’s three-member, volunteer Investment Committee chose investment managers and directly supervised their performance. Around 1998, the two members of the Investment Committee with professional experience in investing, John Beck and Jay Sherrerd, began to express concern about the Foundation continuing to rely entirely upon a part-time volunteer committee to manage what was then a $500-$600 million endowment in an investment environment containing significant new asset categories and new complexities in the capital markets. Mr. Sherrerd believed that the investing “world had changed” and a “volunteer committee on a part-time basis” would be unable without assistance to make the “kind of decisions that really should be made” in managing the Foundation’s endowment.

Based on their own professional experience, their familiarity with the field of institutional investing and their knowledge of PRINCO, Messrs. Beck and Sherrerd both believed that the Foundation should retain PRINCO to invest the Foundation’s assets side-by-side with the University’s endowment, subject to continued oversight by the Investment Committee. They believed that the retention of PRINCO would enable the Foundation to avail itself of a greater diversity of investment opportunities and a level of managerial expertise and quality of service than would be available from any other portfolio manager at a comparable cost.

William Robertson opposed PRINCO’s engagement from the outset. He threatened to sue his fellow trustees and the University, and indeed he did sue the University in July 2002, a few weeks after the Board voted to authorize the Investment Committee to review and consider other potential firms to oversee management of the Foundation’s assets. Nonetheless, the Investment Committee thoroughly considered numerous alternatives to PRINCO, including specific managers proposed by Mr. Robertson. After this review, the Investment Committee concluded that PRINCO was the most cost-effective and appropriate manager for the Foundation’s funds. In November 2003, the Foundation board voted 4-3 to retain PRINCO to advise the Investment Committee and manage the assets of the Robertson Foundation, subject to the continued oversight of the Investment Committee and the Robertson Foundation board.

Why did the Robertson trustees vote against the PRINCO appointment?

The Robertson family trustees all voted against the appointment. As litigation plaintiffs, the Robertson trustees allege that the PRINCO selection process was a “sham.” The decision to select PRINCO, however, was undertaken on the initial recommendation of Foundation trustees who were very experienced investment professionals and only after a careful, thorough, and year-long review of thirteen alternatives to PRINCO by the Robertson Foundation Investment Committee.

Plaintiffs also claim that the Robertson Foundation’s decision to retain PRINCO to provide investment management services under the continued oversight of the Foundation’s Investment Committee constituted a breach of the board’s duty of care and/or duty of loyalty. However, the evidentiary record demonstrates that the board’s decision to retain PRINCO was reasonable and in accordance with the board’s duties of care, loyalty and good faith. In the 3¼ years since PRINCO was appointed, the value of the Foundation’s assets have increased by more than $250 million.

This is not the first time the Foundation has delegated responsibility for the management of its assets to Princeton University. Prior to 1978, the Foundation—with the support of Charles Robertson—delegated responsibility for management of the Robertson portfolio to the Princeton University Investment Committee.

What has happened to the Foundation’s assets since engaging PRINCO?

The market value of the Robertson Foundation assets in January 2004, when PRINCO took responsibility for the Foundation’s investment portfolio, was $561 million. At the end of December 2007—after four full years of PRINCO management—the net market value exceeded $900 million, after annual withdrawals of $20 million to $32 million for programmatic and capital expenditures.

Because of the superior results PRINCO has been able to achieve for the University and the Robertson Foundation, PRINCO was named the 2006 Endowment of the Year for its continued excellence in investment management. [Document: October 24, 2006 Press Release (.pdf)]

When the Foundation’s Investment Committee was established in 1978, the Foundation’s endowment was just under $34 million, reflecting the fact that essentially all of the earnings on the original $35 million gift had been spent. Between 1978 and January 2004, the value of the endowment rose from $34 million to $516 million, and as of June 30, 2008, the endowment is valued at more than $900 million. At the same time, between 1978 and 2007 the Foundation has contributed more than $330 million in operating and capital expenditures to expand and support the graduate program of the Woodrow Wilson School. This record of accomplishment reflects a longstanding and continuing commitment to skillful investment and prudent management led by University-appointed members of the Foundation and, since 2004, supported by PRINCO.