The American Spectator

Princeton blinked.

That sentence may not make belletrists forget “Call me Ishmael” or “Atlas shrugged,” but it will do nicely for now.

You will remember that the Robertson family had charged that Princeton had repeatedly violated donor intent by misusing funds contributed to the university by their parents, Charles and Marie Robertson — he a devoted Princeton alumnus, she an heiress to the A&P fortune. Princeton’s response to the lawsuit, originally filed in 2002, had been, first, to dismiss its merit, and then to demean the plaintiffs and, finally, to launch a war of attrition designed to exhaust the family and deplete its resources. This attack launched, mind you, against the university’s most generous donor family.

Here’s the backstory on Wednesday’s news. Princeton settled, we sense, for two reasons, one obvious, the other less so. Up against a hard trial date of January 21, Princeton attorneys plotted the arc of a trial under the format prescribed by the newly appointed judge. What quickly became apparent was that the trial would begin with a lengthy recitation of Princeton’s (alleged) malefactions — its misallocations of large chunks of overhead, its improper billing of professors and other personnel, the construction of a building (a building!) wrongly charged to the Robertsons. The opening weeks of what was expected to be a three-month trial would amount to a jaw-dropping tale of more than $200 million of Robertson Foundation funds misused by one Princeton administration after another. By the time Robertson attorneys had completed their presentation, Princeton might have looked like the L. Dennis Kozlowski of American universities. Remember, too, that this courtroom drama would have played out in Trenton, New Jersey, just a short commute from the media capital of the world, where the trial would have been catnip in equal measure to good-gray broadsheets and taunting tabloids. After the first few days of testimony, the Princeton development office would have had all the bounce and jingle of a Christmas party at Lehman Brothers.

Reason enough to settle, to be sure, but what sharpened the focus of the institutional mind, we surmise, was the beginning of an implausible cash squeeze. Princeton sits atop a huge endowment, reported earlier this year to have topped $15 billion. But a review of public filings for its most recent fiscal year suggests the problem. Here’s how Princeton reported its asset allocation: Hedge funds – 26%; Domestic equity – 9%; Fixed income – 3%; Foreign equity – 16%; Private equity – 25%; Real assets – 19%; Cash – 1%.

That’s a lot of illiquidity. Just take the hedge funds, the PE investments and “real assets” (by which they mean timberland, commercial buildings and such like). That’s 70% of the portfolio subject to contractual lockups, market rigidities and other liquidity constraints. All of the university’s cash needs must be met by the other 30%. (One of the reasons stocks sold off so sharply this fall is that, in large portfolios like Princeton’s, stocks are one of the few assets that can be sold.) To get a sense of the dynamic, take a look at the Robertson Foundation, whose assets are managed in common with the university endowment. The Foundation’s assets reached a high-water mark last year of $930 million. Our back-of-the-envelope calculation is that the fund had dropped to $585 million by the time the settlement deal was struck.

Princeton’s leadership may be venal, and has for years been arrogant in the extreme, but it’s not stupid.

As for the Robertson family, after seven years of hard slog, they weren’t feeling fresh as daisies, either. Imagine, if you will, the challenge of holding four branches of a family together when, month after month, the only things going out are six figures worth of expenses and the only things coming in are ad hominem mudballs tossed by one of the most prestigious institutions in the country. In our view, the lead plaintiff, William Robertson, should win the Kissinger Medal in Shuttle Diplomacy. He held the family to its honorable course from day one to day last.

Most remarkably of all, the family knew when to take yes for an answer, which is a path rarely seen clearly through the fog of battle. It was never part of the Robertsons’ purpose to damage Princeton as an institution. The family’s twin objectives were proximate and discrete and, in the settlement reached yesterday, they achieved them both. First, they reclaimed resources sufficient to carry out their parents’ original intention. The new Robertson philanthropy will be a significant force in developing young Americans for government service in the international arena — Foreign Service officers, development and trade officials, intelligence analysts, and so on. (And this just at a moment when the Obama administration has announced its intention to shift strategic emphasis to diplomatic initiatives.) And second, the Robertsons have set an instructive and hopeful example for donors and grantees everywhere. The next time a nonprofit executive is seized by larcenous impulse it may be necessary only to whisper in his ear the magic word, “Princeton.”
 

(Mr. Freeman, who is chairman of the Foundation Management Institute, has counseled the Robertson family. The views stated here are his own.)