<p>In terms of where the money goes I think its interesting that Leon Black’s net worth - $3.5B-is greater than that of Dartmouth’s entire endowment.</p>
<p>Maybe, Leon Black should stop buying art and instead give enough money to Dartmouth so the school can stop borrowing and pay for its needs.</p>
<p>[DEALTALK-Buyers</a>’ stand-off threatens to choke private equity | Reuters](<a href=“http://www.reuters.com/article/2012/07/18/privateequity-deals-standoff-idUSL6E8I9B4X20120718]DEALTALK-Buyers”>http://www.reuters.com/article/2012/07/18/privateequity-deals-standoff-idUSL6E8I9B4X20120718)</p>
<p>Confirms fact that only 10% of 06-08 PE fund money has been returned when should be50% by this time. Driving endowments crazy.</p>
<p>Are these just European PE funds in the link?</p>
<p>Yes but I believe the Bain study referenced includes US funds.</p>
<p>[Blackstone</a> Profit Fell 74% in Second Quarter - NYTimes.com](<a href=“http://dealbook.nytimes.com/2012/07/19/blackstone-profit-falls-74-in-second-quarter/]Blackstone”>Blackstone Profit Fell 74% in Second Quarter - The New York Times)</p>
<p>WSJ has some interesting quotes from Blackstone. “stock market is weak, ipo’s are hard, and there’s no M&A market”," Blackstone didn’t take any companies public in the quarter. Nor did it sell any of its companies to corporate buyers". </p>
<p>Problem I think is pretty simple-buyers are interested in slow growth companies that pay large dividends, or high growth companies. PE is full of companies with declining growth and no dividends(Freescale,Ceasers,etc). Not a real attractive proposition.</p>
<p>^^^ “slow growth companies that pay large dividends” – a vanishing breed also.</p>
<p>So, can someone please explain the key issue to the lay-persons like myself? </p>
<p>From what I’ve read on this thread: It appears that many universities put too much of their endowment into assets that cannot be easily liquidated without huge losses? </p>
<p>And many of those assets may be horribly over-valued on the books? </p>
<p>And private equity firms have been playing games to avoid having to show the real value of assets, including trading assets between each other at inflated values??? </p>
<p>And much of the income from those assets have been consumed by high fees by the firms???</p>
<p>At the same time, investment firms convinced many counties, school districts and municipalities to enter into “interest rate swaps” that provided a few million dollars of cash up front but ended up costing those entities tens of millions in tax dollars to buy their way out the deals. The public entities were gambling on future interest rates, based upon the LIBOR rates. </p>
<p>Meanwhile, a group of banks were lying about the LIBOR rates, which means interest rates were actually higher than was reported, which means that those public entities should not have owned so much money in the swap deals?? The swap deals ended up costing so much money because the interest rates were lower than was expected. </p>
<p>The City of Baltimore is the first of many public entities that are now sueing after these revelations, claiming that they were defrauded out of millions.</p>
<p>Did universities enter into interest rate swaps?</p>
<p>I think you got it.</p>
<p>A quick google search showed me that many universities did lose tens of millions gambling on interest rate swaps. </p>
<h2>Even Harvard lost many millions on this gambling.</h2>
<p>[Wall</a> Street Confidence Trick: The Interest Rate Swaps That Are Bankrupting Local Governments - Seeking Alpha](<a href=“Wall Street Confidence Trick: The Interest Rate Swaps That Are Bankrupting Local Governments | Seeking Alpha”>Wall Street Confidence Trick: The Interest Rate Swaps That Are Bankrupting Local Governments | Seeking Alpha)</p>
<p>“In February, JP Morgan Chase revealed that it had cleared $1.4 billion in revenue on trading interest rate swaps in 2011, making them one of the bank’s biggest sources of profit.”</p>
<p>Charlieschm, fantastic links.</p>
<p>Why did these governments do these swaps?</p>
<p>[Economy</a> Forces Harvard to Tighten Its Belt - WSJ.com](<a href=“Economy Forces Harvard to Tighten Its Belt - WSJ”>Economy Forces Harvard to Tighten Its Belt - WSJ)</p>
<p>Big article in today’s WSJ concening the shaky finances of some of the elite schools. Confirms that problems are far from over.</p>
<p>$30 Billion is hardly “shaky”. It’s all relative. More like going from Kobe beef to US prime. Still very very good comapred to most.</p>
<p>dstark: I’m familiar with a local county and a local school district that each lost many millions on interest rate swaps. Apparently, the financial advisor offered them a deal in which they were paid millions up front, and then offered a best case scenario of how they would make millions in the future. The elected boards admit today that they didn’t understand the deals at all - they believed their financial advisors, who seemed like wizards.</p>
<p>The financial firms and advisors made many millions in upfront fees from selling the deals. The local governments have had to pay tens of millions to get out the deals, a few years later, in order to avoid much larger losses. </p>
<p>There are allegations in at least one case that the financial advisor for the local government was also being paid by the firm that was providing the interest rate swaps. That was a clear conflict of interest. </p>
<p>In most cases, the public officials were gambling with money they had borrowed for capital projects. The swaps were tied into their issuance of bonds for new schools, etc. If the interest rates went up, they were supposed to make money. Few people would have predicted that the interest rates would have gone down so much, and stayed down so low. The Libor scandal involves big banks lying - by reporting that interest rates they were paying were lower than the actual market interest rates.</p>
<p>Charlieschm, I appreciate your informative post.</p>
<p>[Cornell</a>, MIT Scale Back Aid Even as Endowments Rise - Businessweek](<a href=“Bloomberg - Are you a robot?”>Bloomberg - Are you a robot?)</p>
<p>Financial problems taking its toll on tuition support for middle class students. WSJ also had article dealing with the same issue today. Easier for top Universities to reduce aid than to deal with runaway spending on salaries.</p>
<p>From skimming that article, it appears all that MIT and Cornell are doing is to require that everyone take out some federally subsidized loans before they rely upon institutional aid. That makes perfect sense to me. Every student should have some “skin in the game.” It sounds like they are not even requiring everyone to take out the maximum allowed subsidized loans each year. </p>
<p>Why shouldn’t a student at an absolute bare minimum have to take out loans to pay for their own food and some of their housing expenses, instead of expecting a college to pay for it?</p>
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<p>Not only is that true, but reducing salaries has a direct effect on a university’s USNews expenditure per student quotient, whereas reducing financial aid does not since in most cases the latter shows up only as a revenue discount rather than an expenditure.</p>
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<p>Not so sure about the “runaway spending on salaries,” at least if you’re talking about faculty salaries. According to the American Association of University Professors which tracks salaries at 1,250 colleges and universities, tuition increases have outpaced increases in faculty salaries by many multiples in each of the last 3 decades. In the period 1981-82 to 1991-92, tuition at private universities increased 60.4% (in constant 2011 dollars) while the average faculty salary increased 30.6%. Next decade the gap was even wider: tuition increased 35.9%, while faculty salaries increased 11.4%. From 2001-02 to 2011-12, tuition increased 28.9% while faculty salaries increased 7.7%. And salary increases have been even smaller at “baccalaureate colleges” (e.g., LACs), increasing only 4.3% over the last decade, while tuition increased at nearly 7 times that rate.</p>
<p>The gap is even wider at public 4-year colleges. Driven mostly by state de-funding of public higher education, public university tuition shot up by 72.0% in constant 2011 dollars between 2001-02 and 2011-12, while average faculty salaries at these institutions increased just 0.7%.</p>
<p>I do think spending is out of control at many colleges and universities, especially many of the elite private institutions which seem hell-bent on pampering their precious students with every luxury accommodation, amenity, and recreational opportunity known to man, for which they get rewarded in the U.S. News rankings by showing higher expenditures per student, which U.S. News considers an indicator of excellence. But on the whole tuition increases are not being driven by faculty salaries, which have been stagnant almost everywhere over the last 4 years (my own university is just coming off a 3-year salary freeze, and this year the average increase will be 1.9%, almost certainly less than this year’s increase in the cost of living and nowhere near enough to make up for declining real wages since the onset of the recession) and on an extremely slow-growth trajectory for at least the past decade. </p>
<p>I do think there is one way in which salaries are driving up the costs of higher education, and that’s in the growth in the numbers of administrators, or bureaucrats, if you will. Higher education used to be a fairly simple business: you put some students together with some professors in some classrooms, you had a president and some deans and a registrar and a financial officer and an admissions office and a handful of librarians, added in a few custodial and maintenance people and a handful of clericals, and off you went. Now colleges and universities are exploding with centers and institutes and special programs and offices of this, that, and the other, and there’s a kind of arms race to see which colleges can offer the most special doodads, every one of them requiring a director and staff and offices and a budget for promotional materials. That’s where the money’s going, not to faculty. The students seem to want all this stuff, so the colleges and universities compete to provide it because the consumer is king (and what the heck, more spending raises our US News ranking, so if we can pay for it with a tuition hike, why not?) It’s bureaucratic bloat, not faculty faculty salaries, that’s driving up the cost of higher education.</p>