If the board of trustees of a private university keeps investing the endowment through an expensive firm run by their friends, despite substandard performance, could a case be made for breach of fiduciary duty? The economists employed by the university have long urged the board to invest in index funds instead.

I know I would need to consult a lawyer specializing in this area, but I'd like to know first if I would be laughed at or if this is a reasonable question.

  • Are any written ethical or fiscal guidelines the endowment is required to follow when investing? – BlueDogRanch Sep 12 '18 at 21:01
  • Not that I know of. – Embarrassed tenured professor Sep 12 '18 at 21:42
  • In that case, and that it is a private U, they may be able to do anything they want within the bounds of state and federal laws. – BlueDogRanch Sep 12 '18 at 22:00

could a case be made for breach of fiduciary duty?

Yes, I think, although not every person or stakeholder would have standing to sue the board of trustees of the private university.

The prima facie elements of breach of fiduciary duty are "(i) the existence of a fiduciary duty; (ii) a knowing breach of that duty; and (iii) damages resulting therefrom", Johnson v. Nextel Communications, 660 F.3d 131, 138 (2011) (I am not aware of any material differences in other jurisdictions).

Absent any explicit disclaimers of fiduciary duty, (1) the element of existence of that duty is applicable because the trustees' relation with the university is not one of arms length; (2) in their deliberate --rather than negligent-- decision to do business with their friends, the trustees are knowingly and intentionally disregarding the advice from economists of the university, despite the evidenced financial detriment of that deliberate decision; and (3) the element of damages would be proved from the expenses as billed by the firm, coupled with any losses the friends' subpar performance may be causing to the university.

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