Wednesday, July 5, 1995- The Michigan Daily - 3
Investment trading results in
$1. 5M possible loss for 'U'

By Patience Atkin
and Maggie Weyhing
Daily Staff Reporters
The University lost $1.5 million last
week after the Common Fund - which
invests a sum of about $20 billion in uni-
versity endowments - suffered a $128
million loss because of alleged unautho-
rized trading activity by First Capital, its
investment adviser.
"(First Capital) holds $20 billion,
$750 million of which is ours, in an inter-
mediate fund," said Vice President for
University Relations Walter Harrison.
"They contract with another investment
company, and one investment (com-
pany) was apparently frauding the
other."
Harrison said the loss occurred be-
cause of "selling short"- for a fee, an
investor borrows a client's stock. The in-
vestor sells the stock and repurchases it
when the selling price has gone down.
The investor then profits from the differ-
ence in the selling price minus the client
fee.
In this case, Harrison said, the inves-
tor was apparently repeatedly selling
short- to the tune of $128 million.
"There's nothing wrong with (selling
short)," Harrison said. "Most people do
it. It's a little risky because you have to
try to buy back the stock."

The $128 million overall loss
amounts to a $1.5 million loss for the
University.
"There will be no operational effect
as a result of the loss," said Farris W.
Womack, the University's executive
vice president and chief financial officer.
"The effect will be seen in a reduction in
returns. Instead of an 8.2 (percent) re-
turn, we will now only receive 6.9 (per-
cent)."
Harrison said the origin of the invest-
ment money determines the severity of
the loss.
"The University has a total invest-
ment amount of $2.3 billion, $1.3 billion
in endowment and $1 billion in working
capital," Harrison said. "Half of the in-
vestment in the Common Fund was
working capital and half was from the
endowment. A loss in endowment is
money that the University can never get
back, essentially."
The University is actively working to
retrieve the money. "We've already writ-
ten to the Common Fund," Harrison said.
"We've told them we'd like them to
'make us whole,' in other words, we'd
like them to pay us back."
To put the loss into perspective,
Harrison likened the investment to the
stock market. "If we have $750 million

invested in stocks, the loss is equiva-
lent to the stock market falling three
points. It's not uncommon for the
value to fluctuate one or two points in
a day."
Womack said that although the Uni-
versity is never happy about a reduction
in returns, no decision has been made yet
on the University's investment in the
Common Fund.
"We are working with the Common
Fund to determine the problem and de-
cide are course of action," Womack
said.
Harrison said the University has had
a first-rate experience with the Common
Fund. "We're confident that they'll look
into this and put in better controls," he
said.
The University of Minnesota pulled
its investments on Monday from the
Common Fund and First Capital. Ac-
cording to The New York Times, the
University of Minnesota had not lost
any money due to the trading of First
Capital, but it still decided to seek an-
other client.
More than 1,400 colleges and univer-
sities invest in the Common Fund. The
Times reported that except for Minne-
sota, none have announced whether they
will continue to invest with First Capital.

JONATHAN LURIE/Daily
At the scene of the crime
Nick Calloway (right), an Ann Arbor resident, watches after his car was hit by
a van that knocked over a gas pump on Monday at Washtenaw.