<p>[Articles:</a> Princeton’s Unobservable Assets](<a href=“http://www.americanthinker.com/2011/08/princetons_unobservable_assets.html]Articles:”>Princeton's Unobservable Assets - American Thinker)</p>
<p>Pretty much sums up the argument we have been making over the past 2 years.</p>
<p>Recent market problems big problem for endowments for the simple reason that endowments get returns from taking big risks and investors are de-risking now.</p>
<p>Amazing…sm74…just amazing…</p>
<p>Princeton to be propped up by government support? Hey, this isn’t AIG…</p>
<p>What has propped up these Universities the last 2 years has actually been government research funds. Most major U’s this was the only revenue category that increased. Not to get political but with Obama one can understand why Universities are getting extra money but with the focus now on government spending and trying to determine what is necessary and what is nice to have I have to believe that giving money to rich Universities for sometimes very questionable research is an easy area to cut.</p>
<p>I have a friend that runs a graduate school department…one of the top ones in the country…and my friend’s funding has been cut and layoffs have occured…this is going to affect the upcoming year…</p>
<p>I don’t see this as a good thing. Private companies use this research…so this affects the private sector too…</p>
<p>Great article linked above highlights Princeton, but the same problem exists with many universities. They were convinced to put way too much money into high risk investments that they still can’t sell. The article is definitely worth a click.</p>
<p>That article and the associated information in the annual report should get the attention of any smart alumnus or donor. It is absolutely stunning to me that so much of the endowment could be tied up in illiquid investments. Not to mention that there is an outstanding “obligation” to invest an addition $4 billion over some (undisclosed) schedule spread over (what is implied in the footnotes) to be a ten year period. This would presumable be in equally illiquid pools.</p>
<p>The guys running these funds are certifiable idiots.</p>
<p>And the one thing you can be certain of is that the valuations put on the illiquid investments are not “too low”. I have seen instances where valuations of their portfolios done by the managers are egregiously high. Its a little like asking people to appraise their own houses. </p>
<p>God Bless Princeton. They’re going to need it.</p>
<p>Dadx one of the problems is that the major donors and Board members run these hedge funds and private equity companies.</p>
<p>[Duke</a> Libraries to receive $13.6M gift, largest in history | The Chronicle](<a href=“http://www.dukechronicle.com/article/duke-libraries-receive-136m-gift-largest-history]Duke”>http://www.dukechronicle.com/article/duke-libraries-receive-136m-gift-largest-history)</p>
<p>Also, this isn’t just about Princeton. While Princeton’s tier 3 assets were at 82% Yale’s is at 84%.</p>
<p>re the Princeton article- WOW… just wow! I have sent it to a close friend of DS who is considering Princeton for grad school [ he would get accepted there [again], as he is a Churchill scholar and postponed his graduate studies because he will be at Oxford this year]</p>
<p>Do you have any idea why, of nearly a billion of domestic equities, only 60 million is classified as a level 1 asset class? It looks as though only 60 million is actually in public stocks. They do have enough in fixed income that looks as though they could slowly sell it to meet their obligations under the $4B funding commitments. But they would be fools to do that.</p>
<p>My experience tells me that there is going to be an attempt in the private markets to raise a “liquidity fund”, or “opportunity fund”. The sales pitch will be that there is a terrific opportunity to buy interests from these “distressed investors” at a significant discount. Then the fund will go out and not get enough of a discount, and those investors will lose too. Maybe this is already occurring. I’m a little out of the loop.</p>
<p>dadx-there is a pretty active secondary market for Private equity. Not to long ago Harvard tried to dump $500M of PE real estate dogs that they owned to China(see below)</p>
<p>But as is often the case once due diligence is done the price a buyer is willing to pay is significantly less than the seller thought it was worth and it fell through. </p>
<p>[Harvard</a>, CIC reportedly end real estate fund sale talks - Latest Global Private Real Estate Fund & Investor News | PERE](<a href=“http://www.perenews.com/Article.aspx?article=55959&hashID=2BAE68FEC36D57AFC2F0C621DDF6E8D0748C7629]Harvard”>http://www.perenews.com/Article.aspx?article=55959&hashID=2BAE68FEC36D57AFC2F0C621DDF6E8D0748C7629)</p>
<p>[Maine:</a> Wind Is In The Forecast](<a href=“http://energy.aol.com/2011/08/16/maine-wind-is-in-the-forecast/]Maine:”>http://energy.aol.com/2011/08/16/maine-wind-is-in-the-forecast/)</p>
<p>Good example of 2 points from the American Thinker article:
<p>There are Wind Farms in NH operated by a company from Spain or Portugal and they can provide up to 10% of NH’s electricity needs when the wind is blowing so an operation in Maine doesn’t sound like a bad idea. As long as building and maintenance costs are decent.</p>
<p>Wind Farms typically have long-term contracts to purchase their power for the number of years that is needed to pay off the investment. They also often have federal tax benefits or low interest financing. As a result, a wind farm can be valued relatively easily.</p>
<p><a href=“http://www.pionline.com/article/20110817/REG/110819925[/url]”>http://www.pionline.com/article/20110817/REG/110819925</a></p>
<p>Interesting reading between the lines on this McKinsey study. What I read is that the “Yale Model” for managing investments is creating alot of headaches and resulted in far greater risk taking than people ever realized. They are moving away from the “Yale Model”</p>
<p>When did this get to be called the Yale plan? I’m familiar with that term being used to describe a post depression investment strategy of continuous rebalancing of portfolios between equity and debt. It unfortunately amounted to cut your winners and let your losers run. It’s referred to in one of the essays in Charlie Ellis’ excellent compendiums on investment Classics.</p>
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<p>that sounds like something out of the old Ford Foundation report issued back when McGeorge Bundy was its head. It said, that colleges and universities could afford to take more risk in their endowments by implementing the then unheard of practice of investing most of their portfolios in equities and then spending what was left of the “total return” after reinvesting a fixed amount. Bundy was an alum and then, as now, Yale was an early adapter of the latest fad in investment strategies. It worked for a while until the stagflation years from 1970-80. <em>Dejas vu</em> all over again?</p>
<p>The current-day Yale Model is attributed to David Swensen who has been Yale’s CIO since 1985. Takes Bundy’s basic idea and goes about 4 extra steps out on the risk scale. The model basically says its ok to invest just about all your assets in high risk, illiquid classes like Private equity, hedge funds, and emerging markets. As long as you diversify you limit your down-side. What has actually happened the last few years is that when you invest in very high risk asset classes when things go very bad all those classes can collapse at the same time. High risk is high risk.</p>
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<p>Wow, that is remarkable, Dstark. Remarkable in the sense that it is exceptional for any government-sponsored research to be actually used by someone in the private sector.</p>
<p>Most, and probably all of what was funded by Porcullus, is destined to be published in journals that nobody reads, except for the small circle of people who are convinced to peer-review it, and the poor souls who are assigned to read the research.</p>
<p>Fwiw, is our life so much richer to know the answer provided by this type of research:</p>
<p><a href=“http://www.buffalo.edu/news/12769[/url]”>http://www.buffalo.edu/news/12769</a></p>
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<p>How does THAT kind of #$%#$^ get funded.</p>
<p>Your touch of anti-intellectualism is not becoming. Is it something you ate?</p>