<p>It is clear that, like many other institutions, they were over invested in PE, Venture Capital, timber, oil and gas, and other illiquid investments given their cash needs. It is further clear that lots of the “best and brightest” institutions did not think through their liquidity needs, assuming that PE and VC firms would provide liquidity every year. Bad assumption.</p>
<p>But, I don’t hyperventilate about it that much. First, it’s not my money, although I do have money invested in hedge funds and private equity in my pension fund. Second, and more important, the question is whether this is a problem of liquidity or of a permanent loss of value. I’m personally not worried about the hedge funds. In my case, they went down in 2008, but less to a lot less than the market, and have come up in 2009. PE is harder to evaluate – could be a lot of destruction of value there. In my case, it is a newish fund from one of the “best” sponsors and 70% has not been invested yet. I would guess that, given its location and connections, Stanford has a very healthy allocation to venture capital. I’m less knowledgeable but less worried about this – the liquidity in the IPO market of for sales to industry buyers is quite cyclical. I suspect it will come back within the reasonable time frames. Third, on the cash call issue, I don’t think the cash calls will all come in the next year, but will probably wait until the funds themselves can see exit strategies for their investments. When I worked in the investment world, I always wanted to have more than one plausible exit strategy for each investment before I recommended an investment.</p>
<p>Anyway, if Stanford’s exposure has a very heavy dose of VC, maybe they’re OK except for short- to middle-term illiquidity. That cost is, as you point out, substantial, but probably a lot less than jettisoning the stakes in what is generally a very illiquid secondary market. </p>
<p>With PE it may be different – and it is possible given location that Harvard’s endowment is more heavily weighted to PE.</p>
<p>sm74, you are probably right about real estate. Total bubble fueled by liquidity. But maybe if we pump enough stimulus $$ into the economy we can reflate the bubble. I was focusing on the asset classes I know something about. Interesting, I invested in a distressed debt fund of funds for the same reason Penn did, but it has not performed as well as my other funds.</p>
<p>I believe that Harvard led the charge into timber real estate, driving up the value of their large holdings as everyone jumped on board the timber train. Until the bubble burst and now the timberland is worth just about nothing.</p>
<p>interestdad, I’m not an expert in timber, but it seems hard to believe that Harvard’s timberland holding is worth next to nothing? What are you looking at?</p>
<p>I think one of the articles said that Harvard had roughly 12% of its real estate portfolio in timber holdings prior to 2004. This could reflect a very substantial gain. Money invested after 2004 could be down 20%.</p>
<p>So, the problem is likely illiquidity (these are really assets to hold for a long time) combined with an over-reliance on illiquid investments. FAS was getting more that half its income from endowment returns. When someone shut off the tap for a while, this becomes a big problem. The data I see (and I’m really not an expert) does not suggest that the value is next to nothing. Harvard could be way up on the in the pre-2005 timber investments and down 20% on the post-2005 timber investments. But not nearly zero. </p>
<p>Is there data that suggest it is worth just about nothing?</p>
<p>I for one believe in the long term returns on the majority of these “illiquid” investments. I don’t think that the recent experience at all establishes that they were ill-chosen as a group.
What almost everyone can agree upon is that too many people bought into rosy scenarios on a year-to-year basis, and were left cash short on their obligations. A spanking and a lesson learned. But nothing more damaging for the elites than red faces.
I would still rather be HYP than anybody else.</p>
<p>The Houses (upperclass dorms - all sophomores, juniors, and seniors live in one) generally speaking all have private bathrooms for each room/suite. Some houses are even majority singles with private bathrooms. You can imagine how many of hundreds/thousands perhaps of bathrooms exist. Plus Dorm Crew cleans the private bathrooms in the first-year dorms that have suite bathrooms as well (some have hallway bathrooms). It’s not bad for the money - you can earn $3000 in one month to do spring clean-up after classes end before graduation!</p>
<p>I’ll defer on the timber prices. I’m just going on some articles earlier in the year suggesting the bottom fell out of the timberland market.</p>
<p>BTW, one of the silent ones finally came up out of the foxhole today – Dartmouth. Very sketchy information, but looks like a rocky road. They spent 6.2% of endowment in FY2009 and then the endowment fell 23%.</p>
<p>The new Pres says that endowment spending will be flat or perhaps down a bit over the next few years. Well, if it’s flat, then endowment spending this year will be 8.1% – a truly astonishing number. I would expect to see more draconian cost cutting and more urgency than is apparent from the sparse public announcements. At 8.1% annual endowment spending, they are, for all intents and purposes, running a going out of business sale, spending down the endowment.</p>
<p>Even if the bottom fell out of timber prices, its not the end of the world. It is a cyclical market. This is an extremely long term investment with discretion as to when to harvest and collect income. No one is forcing Harvard to cut now - the trees keep growing.</p>
<p>$59k per capita? Pathetic. You’d think given the amount of tuition they charge they’d have a decent endowment. But then, I’m not surprised. Who would donate money when they get charged so much for tuition when they’re there already?</p>
<p>Anyways, the current real estate prices won’t continue. They’ll go up eventually. Now is the time for university to spend, spend, spend if they’re going to do it and they have the cash.</p>
<p>Okay, this thread is (finally) getting me really worried. As a full-pay parent of a student who will start college next year, my main concern is that the financial troubles of the university might negatively impact her educational, extracurricular and social experience. Can one of you money-savvy guys please look at the following list and let me know how these schools rank in terms of financial health?</p>
<p>^^^^
All of those colleges will survive the recession and emerge five years from now leaner, meaner, and probably stronger institutions thanks to some fiscal discipline.</p>
<p>All of those colleges (along with every other college and university) will be making cuts that impact the student experience over the next five years. That’s just a fact. You actually want a college that is making the cuts, because it’s a sign of responsible management. It’s good for them to think about priorities. Alums coast along saying they can’t cut the art museum funding or this athletic program or this or that. Everything is a sacred cow until, all the sudden, the school has no more linguistics courses (or whatever) and then people stand up and realize, “oh, this wasn’t a joke…”</p>
<p>It’s impossible to “rank” financial stress at various colleges. Trying to figure out what is going on at just one college takes some considerable focus – reading all the statements from the college, reading the finanancial reports, searching the campus newspaper for “budget” or “recession”. Searching the media for stories.</p>
<p>My advice would be to just follow along this fall as the colleges of interest begin posting their FY2009 year-end financial reports and all their ad-hoc budget committees start presenting their three-year budget outlines.</p>
<p>I agree. I am constantly wondering where the tipping point will be for schools who need to make serious cuts (as Interesteddad once said, into muscle and bone) and yet insist on hanging on to a no loan policy. I am all for meritorious admissions in a need blind way, but at the same time, I don’t want to feel like I paid for a BMW and ended up with a Ford Fusion. It’s not that there is anything wrong with the ford, but it’s not what I paid for.</p>
<p>VP - Of those, I know Macalester brought in ~10 new tenure-track faculty this year. They are mainly tuition-dependent and managed endowment conservatively, so they’ve been able to cherry-pick.</p>