OU Foundation money moves around the world
Evin Morrison, The Oklahoma Daily
Himadri Chemicals and Industries deals in coal tar pitches, chemical oils and other substances. The company claims to be the largest Indian coal tar pitch manufacturer and has six manufacturing facilities in India and one in China, according to the company's website.
The company was listed in Forbes India's list of businesses that “made money in sectors that were never on anyone's radar.” It also claims that its current business model is sound thanks to investments from Citi Venture Capital International and other investors.
One of those other investors is the OU Foundation to the tune of $124,815 courtesy of Bain Capital, according to the foundation's tax records.
The $1 billion OU Foundation is a private, nonprofit entity that manages and spends money donated to OU. Some of those investments are given to venture capitalists or private equity fund managers — such as Bain Capital — who take that money and invest it overseas in companies like Himadri Chemicals and Industries.
The foundation is charged with making the most of the money given by donors and making sure the donors' wishes are carried to fruition, OU Foundation President Guy Patton said.
The target allocation rate is about 7 percent of the foundation's investments that go to venture capitalists or private equity fund managers, Patton said. This diversifies the foundation's assets and allows it to take advantage of growth in other countries, he said.
“Oh, god yeah we wouldn't invest if it wasn't [a good investment],” Patton said. “We expect the returns on the investment will be higher than the returns on publicly traded companies.”
In the foundation's FY 2011 tax records, it lists 25 affiliated private equity managers, but the amount of money invested into those entities isn't given. It also does not list all of the foundation's investment managers, which is 67, Patton said.
“The [tax record] is, among many other things, a snapshot of the foundation’s investing,” Patton said.
However, there are listed transactions totaling $4,466,227 being invested into foreign corporations by the foundation's private equity partnerships, according to the tax records.
This type of investing puts the foundation's money into the pockets of companies in the Cayman Islands, India, Hong Kong and Luxembourg. And one of the foundation's partners is Bain Capital, which has been in the news recently thanks to former Gov. Mitt Romney's affiliation with the company. Romney co-founded the company in 1984.
Stories of Bain Capital's investment practices surfaced after Romney began running for president. The company sometimes performs buyouts of companies to get returns on its investments, and these buyouts can lead to company layoffs.
The foundation began investing with Bain Capital in 2006, and it's still considered the gold standard of alternative investments, Patton said. The foundation goes through a rigorous interview process with managers before deciding to invest money, and Bain Capital has been very transparent with the foundation, he said.
“We won't invest in anyone if we haven't seen their office,” Patton said.
Investments into private equity funds allow money to be invested actively rather than passively in generating wealth and returns through business enterprises anywhere around the world, and it's a common practice, in fact it's necessary, said Pradeep Yadav, director of the finance department at Price College of Business. It allows small groups of investors to invest large amounts of money for longer periods of time, he said.
But instead of having to deal with month-to-month demands of shareholders and investors, private equity funds usually have monies invested from five to 10 years that often lead to better returns than publicly traded companies.
“It is almost imperative for a major university endowment to do,” Yadav said. “We live in a world where we have no trade barriers. There is an inadequate amount ... of understanding of the fact that investing outside the United States doesn't signal somebody that is a crook or a scoundrel, or someone that is unpatriotic.”
One of the reasons private equity funds investing in private firms are able to perform so well, besides capitalizing on world economic growth, is because there are less regulations than publicly traded companies, Yadav said. There is less paperwork and oversight, and this potentially allows the company to do what it needs to do — invest — without having to worry about filling out reports, he said.
There are also tax benefits for the foundation, Patton said.
Of the firms listed on the foundation's tax records, several are governed by the laws of the Cayman Islands. Not every foreign corporation recognizes nonprofits like the foundation as tax exempt, so using these entities governed by countries with favorable tax codes or agreements allows for the foundation to avoid doubling up on taxes, Patton said.
The foundation's ultimate goal is to make sure its endowments, which are at about $750 million, and other donations are being invested in a multitude of ways to maximize earnings, Patton said.
“It's investing with greater earning,” he said. “It ultimately increases the impact we have on the university.”