<p>[Harvard</a> Suffered Losses on Real Estate Trades with Goldman Sachs | The Harvard Crimson](<a href=“http://www.thecrimson.com/article/2010/4/27/harvard-suffered-losses-goldman-sachs/]Harvard”>Harvard Suffered Losses on Real Estate Trades with Goldman Sachs | News | The Harvard Crimson)</p>
<p>Through this Goldman Sachs mess were always wondering who the knuckleheads were that Goldman Sachs took advantage of–looks like Harvard was one of those knuckleheads.</p>
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<p>I agree. I think many schools have held off with cost-cutting announcements until after the deposit checks from this year’s class on incoming students has been safely put in the bank (or signed over to a private equity fund cash call).</p>
<p>I had to chuckle. Haverford lost 35% of its endowment and has announced basically nothing about cost-cutting except to say that they’ll have more news later in the year. I bet they will. :)</p>
<p>[E-mail</a> suggests Goldman knew Harvard would lose - The Boston Globe](<a href=“http://www.boston.com/business/markets/articles/2010/04/28/e_mail_suggests_goldman_knew_harvard_would_lose/]E-mail”>http://www.boston.com/business/markets/articles/2010/04/28/e_mail_suggests_goldman_knew_harvard_would_lose/)</p>
<p>This article is pretty shocking and raises alot of questions about what was really going on within the Harvard endowment.
Among those questions:
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Right on time:
[Greylock</a>, Dodd to end service at semester’s close : The Williams Record](<a href=“The Williams Record – The Student-Run Newspaper of Williams College Since 1887”>The Williams Record – The Student-Run Newspaper of Williams College Since 1887)</p>
<p>HPY are doing fine. I worry about a number of smaller schools that I suspect may be in financial trouble and are working hard to hide the fact and the inevitable. One of my kids looked at the College of Santa Fe and a friend’s daughter graduated from there. Not an inexpensive school, and it is barely hanging in there. Antioch has closed its doors, Hampshire has problems, Beloit is financially in trouble, Yeshiva’s endowment has taken a Madoff hit. I would look very carefully at where I choose to invest my educational dollars these days.</p>
<p>There is an interesting Q and A with Penn’s Chief Investment Officer here:</p>
<p>[Penn</a> Current: Interviews: Kristin Gilbertson](<a href=“http://www.upenn.edu/pennnews/current/interviews/050610-1.html]Penn”>http://www.upenn.edu/pennnews/current/interviews/050610-1.html)</p>
<p>From the Penn interview:</p>
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</p>
<p>Wow. That would leave some of the better managed schools in very good financial position, having cut significant costs. It would bring endowment spending rates to unpredented low levels.</p>
<p>Seems like the markets just cratered this week though…so getting whole by June 30 doesn’t seem as likely now</p>
<p>[Ginn</a> and Lubert Adler lawsuit](<a href=“http://www.gotoby.com/news/Ginn_and_Lubert_Adler_lawsuit.htm]Ginn”>http://www.gotoby.com/news/Ginn_and_Lubert_Adler_lawsuit.htm)</p>
<p>Lawsuits are about the only way to get a glimpse inside what these endowments have been doing. This investment by HYP seems particularly bone-headed. What’s interesting here is that creditors are going after prior distributions made to limited partners-in this case HYP- so not only are existing investments pretty much worthless they may be on the hook for returning money received years before.</p>
<p>So sm74…a partnership…borrows money against assets…then distributes money to partners…</p>
<p>then the company goes broke…and the creditors sue and want those distributions?</p>
<p>Sounds like many PE firms could have problems…</p>
<p>I thought that was modus operandi at PE firms…and some real estate firms too…</p>
<p>Not the first suit I’ve seen from a banruptcy trustee over a recapitalization. Seems like a no-brainer that a trustee should go after limited partners who received distributions shortly before bankruptcy.</p>
<p>On another on-going issue-Univ of Chicago just issued another $300M in taxable bonds. One year after HYPS and Chicago issued massive amounts of debt they have all gone back into the debt market for more</p>
<p>I thought the Univ of Chicago was supposed to be in good shape.</p>
<p>The stock market has rallied over 4,000 dj points from the bottom. The bond market has soared. </p>
<p>Although I think the financial system in this country is still really messed up…these rallies have to help.</p>
<p>dstark:</p>
<p>Many of the big boys have missed the market run-up because they had to unload all their private equity at the bottom of the market to raise cash. This left their endowments invested almost exclusively in junk like PE and real estate that hasn’t seen the market rebound. </p>
<p>The big losers were endowments that had to bail out of public stock and missed the spring 2009 rebound. Those same endowments are missing the boat this year, too.</p>
<p>Haverford is the worst-cast example, losing 35% of their endowment value by liquidating essentially all of their public equity in December 2008 at the bottom of the market. They had no choice. It was only thing they could sell to cover their cash calls.</p>
<p>My thinking is…if assets are valued higher in the public markets (stocks and bonds)…</p>
<p>Assets will eventually be valued higher in the private markets…and this will help PE firms…and companies that have invested with PE firms.</p>
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<p>I’m not sure that’s true. I mean, for sure, investors are praying that tomorrow bails out the value of the private equity and real estate funds. The probablem is the debt that was inherent in the ponzi scheme supporting those investments. I just don’t know if the leverage will permit those investments to ever get to “tomorrow”.</p>
<p>I think “on paper” these schools will report 10-15% increases in their endowment this year. However, I have seen no improvement in the liquidity/cash flow from endowments heavily into tier 3 assets. I think we’ll see heavy borrowing for atleast a few more years.</p>
<p>[Harvard</a> arts and science budget cuts | Harvard Magazine](<a href=“http://harvardmagazine.com/breaking-news/harvard-arts-and-sciences-budget-cuts]Harvard”>http://harvardmagazine.com/breaking-news/harvard-arts-and-sciences-budget-cuts)</p>
<p>Update on the status of the Harvard endowment</p>
<p>[Harvard</a> managers earn $26.7 million | Reuters](<a href=“Harvard managers earn $26.7 million | Reuters”>Harvard managers earn $26.7 million | Reuters)</p>
<p>Nice to know that no matter how bad things get the HMC folks are sure to get their multimillion dollar pay. You don’t have to be a Harvard MBA to understand that when you compensate people in the way HMC does based on short-term performance against a benchmark that the managers are going to invest in the riskiest, potentially most dubious funds, and certainly in those funds that are “reporting” the hottest returns at the moment. For most experienced investors those are just what you avoid because you always end up with the nightmare that they are now experiencing.
Are the managers paying any price for this-no–most have moved on (knowing full well the damage that was coming Harvard’s way). Awful stuff but it all goes back to the terribly flawed rewards system that was put in place by the Board.</p>
<p>[Private</a> Equity-Backed IPOs Leave Buyers With Worst 2010 Returns - Bloomberg.com](<a href=“Bloomberg - Are you a robot?”>Bloomberg - Are you a robot?)</p>
<p>Not good news at all for the big endowments. They really need these IPO’s so they can get their cash flow going again but given the poor performance of PE IPO’s I think its going to get real tough to market PE IPO’s for the forseeable future.</p>