U of T’s endowment, pension funds have investments in two offshore tax havens
The pension fund holds shares in WLR IV Loans AIV Feeder (Cayman), Ltd., part of a web of offshore companies traced to U.S. Secretary of Commerce Wilbur Ross, who founded a coal company implicated in the deaths of a dozen miners and an investment company fined $2.3 million (U.S.) for financial improprieties.
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The University of Toronto’s endowment and pension funds have investments in two offshore tax havens including a Cayman Islands company founded by U.S. Secretary of Commerce and billionaire Wilbur Ross, newly leaked documents reveal.
The University of Toronto’s pension fund holds shares in WLR IV Loans AIV Feeder (Cayman), Ltd., part of a web of offshore companies traced to Ross, a billionaire investor who founded a coal company implicated in the deaths of a dozen miners and an investment company fined $2.3 million (U.S.) by the Securities and Exchange Commission for financial improprieties.
The Governing Council of the University of Toronto — which oversees the academic, business and student affairs of the university — is also named as an investor in a company listed in the Malta corporate registry.
Both Malta and the Cayman Islands are well-known tax havens. The investments are not listed in U of T’s annual pension and endowment statements. The Cayman Islands investment doesn’t appear in the university’s financial statements because it represents less than one per cent of the pension fund’s total assets, according to a written statement from the university.
In all, a cache of 13 million leaked records from the offshore law firm Appleby — known as the Paradise Papers and obtained by the International Consortium of Investigative Journalists which includes the Toronto Star — show more than 150 prestigious universities and colleges across Canada, the U.S. and the U.K. with tax haven investments, including Oxford, Cambridge, Princeton, Columbia, Stanford, University of Pennsylvania and University of Texas and Northeastern.
Together, they are invested in more than 200 offshore firms, mostly in the Cayman Islands and Bermuda.
There is nothing illegal about the investments. And for Canadian universities, there is no apparent tax advantage since universities here are already tax exempt.
But for publicly funded institutions of higher learning and open dialogue, the move into secretive offshore tax havens comes with risks, experts say.
More than $6 billion in U of T endowment and pension money is managed by the University of Toronto Asset Management Corporation (UTAM), a non-profit with a Bay Street address that operates separately from the university.
UTAM signed the United Nations-backed Principles for Responsible Investment (PRI) in 2016, which defines an investing approach that aims to incorporate “environmental, social and governance” factors in order to “better manage risk and generate sustainable, long-term returns.”
“If they are involved in tax havens, it may represent a reputational risk to the university,” says Omar Dominguez, former chair of the Coalition of Universities for Responsible Investment, which published a 2013 report on ethical university endowment investing.
“As an investment manager at a university, you’re responsible for raising money to provide scholarship and professorships and research . . . We do need to engage in questions of morals and ethics and not turn a blind eye to how we’re making money. Tax havens do provide that opportunity and it does raise questions about whether we should make money at any costs.”
Requests for an interview with UTAM officials were declined. In its written statement, the university said it invests around the world, “using a broad diversification strategy that goes well beyond the Canadian economy, which represents only three per cent of the world financial market. We do this to ensure we manage risk and realize the best returns for our pension and endowment funds.”
The statement describes the Cayman Islands investment as “long-term.”
“We made this particular investment 10 years ago and . . . it’s a very small position.”
U of T’s pension fund sat at $4 billion as of June 2016. Its endowment funds totalled nearly $2.4 billion as of April — the biggest among all of Canada’s universities. Investment returns help fund student aid, endowed chairs, research and teaching, and academic programs for more than 85,000 students, U of T’s statement to the Star reads. Forty-three per cent of endowment earnings go to student aid.
UTAM’s leaders are conspicuous on the list of top-paid university employees in Ontario.
William Moriarty, the former president of UTAM, was among the highest-compensated public-sector workers in Ontario, earning $937,500 in 2015 — the highest-paid university employee in the province that year. The next three spots on the list were also UTAM employees.
Moriarty’s salary cracked $1 million last year when he retired and Daren Smith became president and chief investment officer with a focus, he said, on “strong value-added returns.”
Smith was the university’s second-highest paid employee last year — and the third highest among all Ontario university employees — with an income of $512,215.61. That is less than he made a year earlier when he was paid $693,507 as one of UTAM’s managing directors.
“The only reason for an organization like UTAM to exist is if it can outperform its benchmarks,” Smith is quoted on U of T’s website. “We believe that we have the governance, team, infrastructure and culture in place to maximize the chances of outperforming in the future.”
Since Canadian universities are tax exempt, chasing higher investment returns is the only clear motivation for venturing into tax-free offshore havens.
“I think the issue is they have a large endowment,” says Adam Aptowitzer, a tax lawyer with Drache Aptowitzer LLP. “They’re looking for a specific rate of return.”
Burgeoning endowments concentrated in large, elite schools across the Western world are fuelling the move offshore — and expanding an already growing divide between have and have-not schools, some experts warn.
“It’s a constant issue of haves and have-nots,” says Toronto charity tax lawyer Mark Blumberg. “Tax havens undermine the ability of the Canadian and provincial government to collect taxes that fund vital services such as health care, education and poverty alleviation. By investing in investment products located in certain tax havens a charity may be supporting a system that undermines the revenue they wish to receive from government and could reputationally negatively affect the charity, which can also affect fundraising.”
The Governing Council of the University of Toronto appears as a shareholder — with 333,123 shares — of Troy Capital Limited in leaked documents from the Maltese corporate registry.
It is listed as an “involved party” with a mailing address at MARS Centre on College Street in Toronto.
The Maltese shares are part of a private equity fund managed by an Asian-based fund manager for holding investments in a South Korean bank “in order to simplify the inspection process that’s needed to meet government regulations related to a South Korean banking act,” U of T’s statement reads.
More than 90 per cent of the assets overseen by UTAM are invested by external managers who make decisions for individual bonds, stocks and other securities, says U of T’s statement.
Handing over investment decisions to external fund managers should not remove the university’s self-declared commitment to responsible investing, says Jim Turk, former executive director of the Canadian Association of University Teachers and now director of the Centre for Free Expression at Ryerson University.
“Whether they do it in house or externally, it is ultimately their responsibility to set the parameters in which the investments are made,” he says. “Farming it out doesn’t relieve the university, whose funds it is, from saying, ‘These are the parameters in which we want you to make the investments.’ ”
Universities can dictate, for example, that their endowment funds not be placed in companies with questionable business practices or those that flout environmental regulations — a growing point of sensitivity on Canadian campuses dating back at least a decade.
Universities can make good returns while still choosing ethical investments outside of tax havens, he says. But many have resisted.
“They’ve just said, ‘We’re going for the best returns we can get.’ It’s very strange that while they claim ethical considerations guide what they do in all areas of what they do, they are not sensitive to that in their investments.”
UTAM’s Cayman Islands investment listed Ross as a director between October 2009 and January of this year when he divested the vast majority of his corporate interests after being named to U.S. President Donald Trump’s cabinet, public disclosure records show.
Revelations found in the Paradise Papers and published this past week show Ross has a stake in a shipping company that has received more than $68 million (U.S.) in revenue since 2011 from a Russian energy company co-owned by the son-in-law of Russian President Vladimir Putin. Reports have said that Ross did not disclose the holding when he became commerce secretary. Monday the Office of Government Ethics released a disclosure in which Ross says he has completed selling assets to comply with conflict-of-interest laws.
Worth an estimated $2.5 billion (U.S.), he has luxury homes and an art collection worth an estimated $250 million (U.S.), according to reports. He is best known for investing in American steel and coal.
In 2006, a West Virginia mine owned by Ross’ equity fund collapsed and killed a dozen people. Federal safety inspectors had logged 208 violations the previous year, media reports say. Ross told the media that while he was aware of the safety violations, he had been assured by mine management that it was a “safe situation.”
Before Ross joined the cabinet, the U.S. SEC announced it was taking action against Ross’ WL Ross & Co. for overcharging investors on management fees. Without admitting or denying the allegations, WL Ross agreed to pay $10.4 million (U.S.) in restitution to investors and $2.3 million (U.S.) in civil penalties.