UTAM releases responsible investment assessment reports

Asset management practices given high ranks by UN-supported group

UTAM releases responsible investment assessment reports

The University of Toronto Asset Management Corporation (UTAM) recently released the first series of its Principles for Responsible Investment (PRI) assessment reports. The United Nations-supported PRI is “the world’s leading proponent of responsible investment” and it “encourages investors to use responsible investment to enhance returns and better manage risks.” The assessment reports grade indicators in three modules: strategy and governance, its indirect equity, and its direct equity. Indirect equity is assessed based on UTAM’s external portfolio managers’ selection, appointment, and monitoring.

UTAM is a non-profit organization under Canada’s Income Tax Act that was incorporated in 2000 by Governing Council. UTAM is responsible for overseeing funds, which includes the university’s endowment and pension funds, and it hires financial managers to buy and sell individual bonds and stocks on its behalf. U of T is the only university in Ontario to own a distinct not-for-profit for investment management organization; other universities rely on their governance committees and staff members.

The assessment reports’ scorecards summarize the PRI assessment UTAM achieved under various indicators per module, on a range from 0–3 stars. On average, UTAM received three-star ratings, which were then aggregated to performance bands ranging from E to A+. UTAM received an A+ in both strategy and governance and indirect equity, and an A in direct equity. UTAM earned 29 out of a possible 30 stars from 10 indicators in strategy and governance; it earned 108 out of a possible 111 stars from 37 indicators in indirect equity; and 69 stars out of a possible 75 stars from 30 indicators in direct equity.

UTAM defines responsible investing as an approach that aims to incorporate environmental, social, and governance (ESG) factors into investment decisions to better manage risk and generate sustainable, long-term returns. The corporation committed to the PRI in December 2016. As a signatory, UTAM has committed to PRI’s six responsible investing principles. These investing principles are incorporating ESG issues into investment decisions, being active owners and incorporating ESG issues into ownership policies and practices, seeking appropriate disclosure on ESG issues, implementing the principles within the investment industry, working to enhance principle implementation effectiveness and reporting on activities and progress toward implementing the principles.

UTAM has undertaken numerous processes and programs to ensure responsible investing, including signing the Montréal Carbon Pledge in 2017. In 2016, UTAM also regained proxy voting from external investment managers and adopted an ESG-aligned voting policy. Proxy voting had allowed a third party to engage in voting on UTAM’s structure.

UTAM has also become a member of the Intentional Endowments Network (IEN). The IEN is a membership organization of like-minded institutions of higher education that collectively seek to advance consideration and implementation of their individual responsible investing initiatives.

Sunshine List reveals salaries of over 3,800 U of T employees

U of T investment fund president earns almost $1 million, second highest salary in Ontario

Sunshine List reveals salaries of over 3,800 U of T employees

On March 23, the Ontario government released its annual Sunshine List of public employees who earned more than $100,000 in 2017.

The list contains 3,811 U of T employees, up from 3,626 employees who made it onto last year’s list. The top U of T earner was Daren Smith, President and Chief Investment Officer of the University of Toronto Asset Management Corporation (UTAM). Smith took home $936,089.48, making him the second highest paid public employee in the province. This is a substantial increase from the $512,215.61 he made in 2016. UTAM is a not-for-profit subsidiary of the university responsible for the management of its pension funds, endowment, and both short and long-term investments.

The next top earners from U of T are also from UTAM. Senior Portfolio Manager Charles O’Reilly made $571,307.86, while Chief Operating Officer Lisa Becker, the top female earner at U of T, made $499,678.76, ranking 55th in the province. Managing Director Adrian Hussey earned $499,080.91, while rounding out the top five was Vice-Dean of Learning and Innovation and Professor of Economics Mihnea Moldoveanu, who took home $467,300.04.

Many of the remaining U of T top earners in 2017 teach in the Rotman School of Management; this was also the case in 2016. U of T President Meric Gertler appears 13th on the list of U of T earners. He earned $438,892.04 last year, almost identical to the $438,892.32 he made in 2016, which had made him U of T’s seventh highest earning employee.

More than half of U of T’s Sunshine List earners made between $100K and $150K. Only 0.6 per cent of the Sunshine List members made more than $400K.


Average salary of U of T’s Sunshine List members went down slightly from $160,568.28 to $159,553.18 in 2017, although the number of earners increased. Professors of Education appeared most frequently in this year’s edition, with 74 of them earning more than $100K, followed by Professors of Electrical and Computer Engineering, who appeared a total of 51 times.



University holds investments in offshore tax havens, leaked documents show

Cayman Islands, Malta home for parts of endowment, pension funds

University holds investments in offshore tax havens, leaked documents show

U of T’s endowment and pension funds have been found to hold investments in two offshore tax havens located in the Cayman Islands and Malta.

These revelations come out of the second-largest document leak in history by file size: the Paradise Papers. Leaked documents from the offshore law firm Appleby and business registries in 19 tax jurisdictions were first reported on November 5 by the International Consortium of Investigative Journalists. Using these documents, the Toronto Star reported last Wednesday that U of T invests money in companies in the Cayman Islands and in Malta — two jurisdictions in which taxes are very low. While U of T is not breaking any laws by way of these investments, it does raise ethical questions for a university that lists “fiscal responsibility and accountability” among its four principled commitments to the university community.

The investments

The Paradise Papers show that U of T’s pension fund is a shareholder in WLR IV Loans AIV Feeder (Cayman), Ltd., and they name the Governing Council specifically as an investor in a Maltese-listed company. Neither investment is named in the university’s annual financial statements.

The University of Toronto Asset Management Corporation (UTAM) manages all of U of T’s $2.6 billion endowment and $4.4 billion pension funds, and it is responsible for the decisions to invest offshore. This responsibility does not come lightly: the head of UTAM is ranked among the top paid public provincial employees, and historically earns much more than U of T’s president.

William Moriarty, the former head of UTAM, made $1,045,582.62 in 2016 despite having retired four months into the year.

“The university is aware of how UTAM makes investments on behalf of U of T,” said Althea Blackburn-Evans, Director of Media Relations at U of T. “Our diversification strategy would be much like any large institutional investor… we have a fiduciary duty to protect and grow the investments we make on behalf of our staff and faculty whose pensions we manage, and to make the most of the donations we receive, for the ultimate benefit of our students.”

UTAM made the investment in the Cayman Islands 10 years ago and calls it “a very small position,” according to reporting in the Toronto Star.

The taxes

Nothing about the offshore investments, which the university may be profiting off of, is against Canadian tax law.

“U of T is a tax exempt institution. It does not pay tax on its investment income, regardless of whether those assets are located in Canada, or other countries including tax havens,” said Michael Smart, a tax expert and professor in U of T’s Department of Economics. “There is nothing illegal about having investments in tax havens.”

“If there’s no tax advantage, why do they do it?” asked Smart — and he has an answer. According to the professor, many investment funds and private equity firms are now located in tax havens because their managers receive tax advantages there.

“They are probably also there because some of those funds’ clients prefer the secrecy of tax havens and they may not be fully reporting their income to tax authorities in their home countries, where tax may be due on their offshore investments,” said Smart.

Ethics and optics

Len Brooks, a professor of business ethics and accounting in UTM’s Department of Management, said that because the investments are completely legal, the issue of investing in tax havens is mostly about optics.

“There are some who would argue that if you earn money in a state, then you should be leaving some tax to be paid in that state,” said Brooks. “And if the company was not doing that, then some of the supporters of the university might find it unattractive, and some of those may find it sufficiently unattractive to withdraw their support for the university.”

Brooks said that, when it comes to whether or not it’s right that a publicly funded institution has investments in offshore tax havens, it depends on what the company is doing with the money that’s invested.

WLR IV Loans AIV Feeder (Cayman), Ltd., one of the university’s holdings, was founded by the United States Secretary of Commerce Wilbur Ross, who has a net worth of hundreds of millions. It is part of a network of many offshore companies related to the Secretary of Commerce. Another company of Ross’, WL Ross & Co., reimbursed investors to the tune of $10.4 million USD and paid a $2.3 million USD fine to the US Securities and Exchange Commission last year. The fine was paid for overcharging investors on management fees.

One of the major findings of the Paradise Papers leak is that Ross has ties to some of Russian President Vladimir Putin’s affiliates through WL Ross & Co. The company is the largest shareholder in Navigator Holdings Ltd, a gas shipping business. One of Navigator’s largest clients is the Russian company Sibur. Gennady Timchenko, a friend of Putin, and Putin’s son-in-law, Kirill Shamalov, are among the owners of Sibur.

Smart said that, more broadly, “Tax havens are a big problem in the world today.” He said that “many Canadian corporations have subsidiaries in tax havens,” and some have been accused of using the havens to shift profits out of Canada to “avoid tax in inappropriate ways.”

But, if as Smart said, offshore tax havens are simply where the money is, then it’s important to note what exactly the income on the investments is used for.

According to Blackburn-Evans, the income is used for “student aid, endowed chairs, research and teaching, and new academic programs, in support of more than 85,000 students.” She specified that 43 per cent of the income from the $2.6 billion endowment goes toward student aid.

Smart said that, in his opinion, there is nothing unethical about this for U of T.

UTAM became a signatory to the United Nations-backed Principles for Responsible Investing in December 2016. The corporation was also instructed in the March 2016 “Beyond Divestment” report from President Meric Gertler to apply environmental, social, and governance factors into its investments and to increase transparency. It released its first-ever report on responsible investing over the summer.

In the summer, UTAM’s President and Chief Investment Officer Daren Smith spoke to The Varsity about the report and the corporation’s commitment to ethical investing and transparency.

“We have a lot to learn here, and I’m not going to pretend like we’ve figured it all out,” said Smith. “There may be some bumps in the road, and there may be some on the advocacy side that we need to learn from, but so far I think we’ve been quite successful and we haven’t had any hiccups.”

Brooks said that the policies of the university related to its investments “need to be reviewed on an ongoing basis,” and that “the application of those policies need to be reported on by the investment advisors.”

“It’s not as black and white as many people think when they originally consider it,” said Brooks. “But there are fundamental issues that the university needs to reflect upon and conceivably build into its policies.”

Op-ed: President Gertler’s retreat from responsibility

President Gertler and UTAM’s choices subvert U of T’s divestment policy

Op-ed: President Gertler’s retreat from responsibility

The University of Toronto Asset Management Corporation’s (UTAM) recent report on responsible investment describes steps to include environmental, social, and governance (ESG) considerations in U of T’s investment decision making. However, the proposed actions are an inadequate remedy to the enormity of climate change.

The “resolute commitment to the principles of equal opportunity, equity and justice” in the university’s Statement of Institutional Purpose requires us to do more. U of T should act on this issue, as it did with divestment from tobacco and firms associated with apartheid in South Africa.

U of T’s policy on divestment arguably exists because the university recognizes that the activities of some corporations are contrary to U of T’s values. The policy demands that responses to questions about the university’s social responsibility as an investor be based on the concept of “social injury” imposed on consumers, employees, or other persons, and the violation of domestic and international laws that protect the health, safety, and basic freedoms of people around the world.

The divestment brief comprehensively documents the social injury imposed by the fossil fuel industry, including through climate change, as well as the industry’s well-documented efforts to mislead the public and lawmakers, and its violation of Indigenous rights. The ad hoc expert committee selected by President Gertler acknowledged the industry’s contributions to social injury, as did the President’s response to their recommendations. And yet the remedy chosen has little logical connection to the problem identified, and little prospect of mitigating how U of T’s investments are aggravating climate change.

If the administration will only undertake insignificant and incremental action when social injury has been so comprehensively demonstrated, then President Gertler’s actions have rendered the divestment policy essentially meaningless.

The divestment campaign has laid out a compelling ethical and financial rationale for urgent and substantial action, whereas UTAM’s report barely mentions climate change and does not discuss social injury or the conduct of the fossil fuel industry. This contrasts sharply with the ad hoc committee’s conclusion that some fossil fuel companies “engage in egregious behaviour and contribute inordinately to social injury,” and its recommendation of divestment from firms spreading disinformation or receiving over 10 per cent of their revenue from coal production and burning or non-conventional and aggressive extraction.

Now, UTAM doesn’t even propose screening stocks, but rather “selection and monitoring” of investment managers. It is not convincing that having UTAM review and evaluate various characteristics of its investment managers — or “discuss securities that appear to have material ESG risks,” as the report puts it — will help curb the abuses of the fossil fuel industry or the ways in which it is imposing harm through climate change.

Shareholder activism, also endorsed in the UTAM report, is a similarly inadequate strategy. Asking major coal and oil companies to leave their proven reserves unburned is not a credible response to climate change.

President Gertler himself has acknowledged the seriousness of climate change risks and the fossil fuel industry’s history of misconduct. When describing fossil fuel corporations that are “non-conventional or aggressive extractors and disinformers,” he said, “My expectation is that such investments — properly assessed — would indeed be deemed undesirable from the perspective of ESG-related factors.”

This expectation is not reflected in the U of T administration’s actions. Climate change threatens to devastate low-lying nations like Bangladesh and the Netherlands, and is causing death and suffering in communities around the world.

Moreover, U of T’s complicity in colonial harm caused to Indigenous communities by the fossil fuel industry undermines the university’s commitment to reconciliation. It is not ethically defensible to continue investing in the corporations that work to confuse the public and block political action while their products cause the problem. 

The administration has consistently sought to escape responsibility for the consequences of its investments by relying on UTAM’s unwillingness to divest without clear direction from the President and Governing Council. This contrasts with U of T’s action concerning tobacco and apartheid divestment, as well as the leadership of over 100 educational institutions worldwide that have committed to fossil fuel divestment.

President Gertler should revisit his decision not to divest, implement the spirit and letter of the divestment policy, and stop funding an industry that is burning up the future of U of T’s students.

 

Amelia Rose Khan is Vice President of Toronto350, a group that brings together organizers, activists, and citizens to lead campaigns and actions focused on solving the global climate crisis.

Julia DaSilva is a first-year undergraduate student at Victoria College and co-founder of Leap UofT.

Kristy Bard is a member of United Steel Workers Local 1998’s NextGen Committee, which aims to inspire and educate young members of the United Steelworkers.

Milan Ilnyckyj is a fifth-year PhD student in Political Science and a Junior Fellow at Massey College.

Peter Martin OC, FRSC is a professor in the Canadian Institute for Theoretical Astrophysics at the University of Toronto and a Senior Fellow at Massey College.

Numbers for Ontario’s highest-earning public employees released in Sunshine List

Retiring UTAM CEO William Moriarty nets nearly $1.5 million, is second-highest paid in Ontario

Numbers for Ontario’s highest-earning public employees released in Sunshine List

The province of Ontario has released the annual Sunshine List, revealing significant salary increases for some.

Under the Public Sector Salary Disclosure Act, which was passed in 1996, the province is required to disclose the annual salaries from the previous year of all public employees who earn an annual salary of over $100,000. This list includes people who work for hospitals, municipalities, public schools, colleges, and universities.

There were a total of 115,431 names on the list, an increase from the 111,655 from last year. Of these names, 3,288 were from U of T. Twenty were from the University of St. Michael’s College, 34 from Victoria University, and 14 from Trinity College. These colleges are listed separately under the Sunshine List as they are federated with U of T.

U of T president Meric Gertler took home $438,892.04, making him the university’s ninth highest paid employee. Of the top 20 highest salaries at U of T, 12 of the names are affiliated with the Rotman School of Management and six are employed by the University of Toronto Asset Management Corporation (UTAM), which is responsible for handling the university’s investments, pension funds, and endowments.

UTAM chief executive officer William Moriarty’s salary was $1,473,445.98, making him Ontario’s second highest-paid public employee and the highest paid at U of T. This is just behind Ontario Power Generation CEO Thomas Mitchell’s who earns $1,528,933.36.  Moriarty has seen significant pay increased in the last two years; his salary was $772,547 in 2013, $937,500 in 2014.

According to Althea Blackburn-Evans, who is the university’s news & media relations director, this can be attributed to Moriarty’s bonuses, which were also delayed from the previous year.

“UTAM’s compensation policy provides for incentive bonuses that are calculated in relation to the performance of various components of UTAM’s investment portfolio,” said Blackburn-Evans, in an email to The Varsity, “Also, because of a delay in payments being processed, several senior officials of UTAM, including Mr. Moriarty, received their 2014 bonuses in 2015.  Those bonuses are normally paid in the same year as they are earned.”

On Mach 21, Moriarty announced his retirement from UTAM, which is effective April 15.

“Timing is never an easy decision in the investment management business but I believe that the time is now right for me to step down from my job as President and CEO of UTAM,” he told U of T News.

Watch where your money goes

Ontario's sunshine list shows assets pay more than academics, regarding U of T salaries

Watch where your money goes

THE RELEASE OF THE Ontario public sector salary disclosure (the sunshine list) gravely reminded the U of T community to keep a watchful eye on how the university spends its money. William Moriarty, president of the University of Toronto Asset Management Corporation (UTAM), was reported to be the second highest-paid public sector employee of the province in 2015. He made $1,473,445.98 last year, an increase of more than $500,000 over the previous year and almost double his 2013 salary.

Additionally, the top four public sector salaries within the ‘Universities’ category of the 2015 Ontario sunshine list were all UTAM employees. In fact, the six highest paid UTAM employees raked in a total of $4,330,616.06 last year. In comparison, the university’s president and 11 vice presidents collectively made $3,525,740.14. Those top six UTAM salaries also outweighed the combined salaries of the top 10 paid deans and the individual 2015–2016 University Fund Allocation amounts for the Transitional Year Programme and the faculties of social work, information, forestry, kinesiology and physical education, pharmacy, and nursing.

The UTAM salaries should be alarming to U of T students, especially considering how much they have increased dramatically over the past couple of years. Salaries in excess of one million dollars are extremely uncommon on the sunshine list, and for good reason. Ontarians expect fiscal responsibility from public institutions, and it is rarely justified for individual salaries to constitute such a major line item on public sector budgets.

Those taking home the highest amounts often work jobs that are comparable to the private sector — Ontario Power Generation CEO Tom Mitchell made the top of the list for 2015. Insofar as the public tolerates salaries like these, it is because they are exceptional cases that constitute courting private executives for the purpose of providing public services.

The mission of UTAM, however, is not directly relevant to the university’s core academic goals, and so this justification does not sit well. The corporation was founded in 2000 with the goal of using active investment management to increase the university’s returns on its investments, in comparison to the passively managed index funds that were previously used. It is highly problematic that all of the university’s most highly paid employees serve the financial viability of U of T, rather than its academic mission.

UTAM manages important assets, including the University of Toronto Pension and the university endowment. The university has argued that the active management approach led by UTAM has produced better returns on these investments. Since investment management is a lucrative field, and it is expensive to hire people to do this kind of work, the university might maintain that UTAM employees are worth the cost. 

It is arguable, however, whether UTAM has actually succeeded in outperforming other universities that have more passive investment strategies. According to the 2014–2015 Endowment Report released by the university, U of T’s endowment saw a return of 15 per cent within that year. This does outperform the University of Western Ontario’s (UWO) endowment return over the same period, which reported at 12.5 per cent, but over a five-year period, both universities report an average investment return of just over 10 per cent for their endowments. 

Meanwhile, both universities’ administrations and main governing bodies oversee investments. The key difference is that UWO hires investment managers externally — with a preference for passive management in certain markets — while U of T is tethered to UTAM. Given that UTAM does not seem to drastically outperform other universities’ investment strategies and that it exists alongside a governing council committee that is also focused on investment, it is unclear exactly what value the corporation adds to the university and why it justifies such an immense salary expenditure. 

U of T’s mission is academic, and it should not shy away from offering high salaries to individuals that help to advance that mission. Apart from the UTAM employees, at least the top 250 public sector employees in the ‘Universities’ category of the sunshine list were all employed in either academic or administrative capacities. They made in between $100,000 and $500,000 each and boasted scores of qualifications that justifies their value to academic institutions. The less justified, non-academic expenditures should be addressed though, because they don’t seem particularly worth it.