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March 5, 2009


To the editor:

I must admit, finding out that our beloved University is a plaintiff in a securities fraud case (Associated Press, Feb. 25) involving a hedge fund (WG Trading Company LP & Westridge Capital Management Inc.) has been a bit of a shocker. It flies in the face of the University’s fiscal conservatism about which we at the branch campuses receive regular reminders.

Hedge funds, we teach our students, are utterly risky phenomena akin to casino gambling; to add to that, they operate in a totally unregulated market with tremendous downside risks. It is therefore a bit disconcerting that an estimated sum of $57 million or more from the coffers of the University of Pittsburgh should have been committed to such a highly speculative vehicle. To be sure, the alacrity with which the University has proceeded to recover as much of the funds as possible is quite commendable although the outcome is anyone’s guess.

To be sure, this latest bit of news only feeds into the economic uncertainties already upon us as hiring freezes go into place and planned construction projects are scuttled or postponed. Before the current fiscal exigency plays itself out, however, it may not be a bad idea to address the crucial question of fiduciary responsibility because without securing the latter, the calls to manage the former may begin to sound a bit hollow.

Gautam Mukerjee
Associate Professor
Bradford Campus

Arthur G. Ramicone, vice chancellor for Budget and Controller, responds:

At Pitt, we take our responsibility to preserve and protect University assets very seriously. That commitment is reflected in a record of effective performance that now spans many years. It also is reflected in the action taken more recently, and in partnership with our colleagues from Carnegie Mellon University, by bringing suit in federal court as soon as it appeared that there might be problems with our investments in Westridge.

The monies in question were invested in a federally regulated fund that also was regularly audited by a Big Four accounting firm. Although no investment is without risk, this investment strategy was considered to be conservative — an enhanced index approach tied to the S&P 500. The enhancement came from a strategy which was expected to provide modest returns above the index commensurate with little incremental risk. In addition, the fund manager and strategy were vetted, not only by our own investment professionals but by one of our outside investment advisers, one of the largest and most respected investment consulting firms in the country. As has been publicly reported, the fund also attracted other large and experienced institutional investors.

We do not anticipate that this issue will have a short-term impact on distributions from the endowment. Many of our longer-term questions will not be answered until the proceedings recently initiated by federal regulatory agencies have moved forward. As the ongoing investigation into Westridge provides more information about how the alleged fraud occurred, we will vigilantly search for ways to bolster the University’s protection against such risks.


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