<p>[Harvard</a>, Dartmouth Helped Trigger Financial Crisis, Report Says - BusinessWeek](<a href=“Bloomberg - Are you a robot?”>Bloomberg - Are you a robot?)</p>
<p>I wouldn’t normally agree with the SEIU folks who helped fund this study, but in this case I think they make a good point.</p>
<p>This is an ivy league school…so maybe what is going on is beyond my comprehension… because I didn’t go to an ivy league school…but the following makes no sense…</p>
<p>"Other trustees who manage money for Dartmouth include Leon Black, with at least $40 million in his private-equity firm Apollo Global Management LLC, and William Helman, a partner at venture capital company Greylock Partners, the report said. Helman, who will take over the committee’s helm from Mandel, has received $10 million from the endowment, according to Tellus’s research.
“Dartmouth provides the most egregious example of conflicts,” said Joshua Humphreys, lead author of the report and founding director of the Center for Social Philanthropy at Tellus, on a conference call. He lectures at Harvard. “Can you imagine the investment committee meetings at Dartmouth? Basically half the room has to leave including the chairman of the investment committee.”</p>
<p>I was reading that first paragraph and thinking to myself: this can’t be true - it’s a massive conflict of interest, and I was glad to see that my thoughts were confirmed in the next paragraph. That’s like a city councilor owning a waste management company that has all of the trash contracts with the city voting on who gets the trash contract for the next year. BTW, I know of a city like that - the guy had been in office for quite some time and was thrown out in the last election.</p>
<p>There is so much demand for the Ivies that I think that they will bounce back. Eventually.</p>
<p>[LBO</a> Debt Tumbles Revealing ?Leveraged Fantasy?: Credit Markets - Bloomberg.com](<a href=“Bloomberg - Are you a robot?”>Bloomberg - Are you a robot?)</p>
<p>I don’t know how colleges are affected…but this can’t be good.</p>
<p><a href=“http://www.yale.edu/investments/Yale_Endowment_09.pdf[/url]”>http://www.yale.edu/investments/Yale_Endowment_09.pdf</a></p>
<p>Page 30 lists Yale’s investment committee. I think it’s pretty common for these committees to include a large number of folks heavy into the PE/Hedge fund world. What surprised me was that they didn’t include any high profile professors.</p>
<p>He just turned over the reigns to a younger guy, but for years, the chair of Swarthmore’s Investment Committee has been Samuel Hayes:</p>
<p>[Samuel</a> L. Hayes – Jacob H. Schiff Professor of Investment Banking, Emeritus – Harvard Business School](<a href=“http://drfd.hbs.edu/fit/public/facultyInfo.do;jsessionid=KhTZnQYGQN1Q10Rc0CLdswQm89WBlQsCfdnPp24Kkfv9ns6PLCyp!528537621!815275569?facInfo=bio&facId=6856]Samuel”>http://drfd.hbs.edu/fit/public/facultyInfo.do;jsessionid=KhTZnQYGQN1Q10Rc0CLdswQm89WBlQsCfdnPp24Kkfv9ns6PLCyp!528537621!815275569?facInfo=bio&facId=6856)</p>
<p>Interestingly, he has been the lone public voice on the Board of Managers questioning whether the model of need-blind admissions is sustainable going forward as the financial aid discounting increases with no end in sight. This is a bit like questioning apple pie and motherhood on the Swarthmore board, but I think it’s good to have that question discussed.</p>
<p>^^No, it’s more like questioning the miles per gallon of a Porsche traveling 100 miles per hour with the windows open, the stereo blasting and and air conditioning turned all the way to max.</p>
<p>Interest-I think you are exactly right–the investment managers just don’t want people on their Board that will ask any questions. That’s one good reason why the endowments are in the trouble they are.</p>
<p>[Why</a> University Endowment Policies Are Broken - CBS MoneyWatch.com](<a href=“MoneyWatch: Financial news, world finance and market news, your money, product recalls updated daily - CBS News”>MoneyWatch: Financial news, world finance and market news, your money, product recalls updated daily - CBS News)</p>
<p>More commentary on the conflicts of interest issue.</p>
<p>Harvard has cut its stock holdings:</p>
<p>[Harvard</a> Cuts Endowment’s Stock Holdings in First Quarter of 2010 | The Harvard Crimson](<a href=“http://www.thecrimson.com/article/2010/5/18/harvard-endowment-2010-q1/]Harvard”>Harvard Cuts Endowment's Stock Holdings in First Quarter of 2010 | News | The Harvard Crimson)</p>
<p>Tilghman just put a letter in the Princeton Alumni Weekly telling us that everything is just fine…</p>
<p>[Buttonwood:</a> Who’s the patsy? | The Economist](<a href=“http://www.economist.com/business-finance/displaystory.cfm?story_id=16231444]Buttonwood:”>Who's the patsy?)</p>
<p>Interesting Economist story which confirms that Endowment investors are alot less sophisticated and intelligent than they make themselves out to be.</p>
<p>sm74, love the article . Thanks for posting it.</p>
<p>2 and 20…tough to get great returns with fees like those…</p>
<p>"James Montier of GMO, an asset-management firm, argues that pension schemes have been pushed into the hedge-fund world by weak past (and likely future) returns from traditional asset classes. If valuations return to the mean, a benchmark portfolio split 60/40 between equities and government bonds will return just 4.5% annually over the next seven years. That is not enough to pay for pension promises, so funds decided to follow the example of Yale University, whose endowment diversified into hedge funds and private equity in the 1980s.</p>
<p>Alas, like the supposedly dumb small investor, the pension funds ended up chasing past performance. The flood of money into private equity caused more competition in the world of buy-outs, with the result that deals were done at higher valuations. Those higher valuations have duly led to lower returns.</p>
<p>Another rationale for the move into alternative assets (as hedge funds and private equity are known) is that returns are uncorrelated with those on other assets. But Mr Montier points out that the correlation of returns from different hedge-fund styles (which invest in a wide range of assets, from corporate bonds through to equities) has risen from around 0.3 in 1993 to 0.8 in 2009. Given that 1 would represent perfect correlation, that implies most hedge-fund styles are rising and falling in near-unison. As Mr Montier remarks: “It would appear as if all the hedge funds are doing exactly the same thing—riding momentum or selling volatility.”</p>
<p>It is all reminiscent of the “search for yield” in the past decade, which saw investors ignore risk as they piled into structured products linked to subprime mortgages. This chase for higher returns may not prove quite so disastrous. But it is more likely to reward hedge-fund managers than their clients."</p>
<p><a href=“Wall Street, Still a Giant Garbage Heap - WSJ”>Wall Street, Still a Giant Garbage Heap - WSJ;
<p>If Mr. Briger is correct, and I think he is, then there is still good reason to be concerned about the value and liquidity of the heavily tier 3 endowments. My favorite quote is “Mr Briger said the improved environment is, in effect, a charade, with everyone from central banks to large financial institutions “in cahoots” to boost lending markets and consumer confidence”.</p>
<p>I just think that the hand-wringing about elite college endowments is misplaced.
Just before the market meltdown of 20 months ago or so, Princeton announced spending enhancements. I paid attention because my daughter was a student. The laundry list was for spending initiatives that were unimportant for any student, and of marginal interest even to those making their living off Princeton’s spending. In a nutshell, money wasted.
The impetus behind the “enhancements” was pressure from Congress to increase spending from the endowments, and in Princeton’s case, at least to get annual spending up to around 4% of endowment.
I think our worries should not be directed to the wealthiest among us (the elite colleges), and rather for the government. That would be us. The numbers I have seen say that we owe more per capita as federal and state taxpayers than we do privately. And that trend is exploding.
We may be paying down our mortgages, car loans, credit cards, and student loans (which by the numbers, we are, in each case), but the growth in the amount we owe as citizens is rising even faster in the meantime.</p>
<p>Harvard President Faust addressed the school’s financial situation (and many other topics) in her year-end message to the Harvard community. </p>
<p>Excerpt dealing with financials:</p>
<p>"Throughout the year, we have kept our focus on adjusting to our changed economic landscape. In the wake of the global financial crisis, we have reduced the amounts distributed from our endowment accounts by 8 percent for the academic year now ending, and by 12 percent for the year to come. We’ve had to cut costs in many parts of the university. But the exercise has involved much more than that. It has focused our attention on how we can deliver our programs and services in more disciplined and integrated ways — how we can seek out efficiencies through new combinations and ensure that our spending aligns with core academic priorities, especially during a period of unaccustomed constraint.</p>
<p>The challenge is not just to tamp down costs but to reimagine aspects of how we do our work, to make sure we embrace best practices and direct our resources to their highest and best use. For instance, we have made encouraging progress in a major effort to rethink organizational dimensions of our highly decentralized library system. We have an opportunity, and an obligation, to reconsider and rationalize how we administer one of Harvard’s greatest treasures and to renew it for an era of unprecedented change in how we collect, transmit, and preserve knowledge and information.</p>
<p>In the face of our economic challenges, it’s been a year when we have taken care to sustain our strong programs of student financial aid. Even as we have scrubbed our budgets, we have made it a priority to hold our doors open wide to students of ability and promise, whatever their economic means. And we have attracted outstanding applicants in record numbers. For the first time, applications to Harvard College surpassed 30,000, for approximately 1,650 places in the entering class. Applications climbed in nearly all of our graduate and professional schools, with numbers at or near historical highs in business, design, education, government, law, and medicine."</p>
<p>Surprisingly, Wesleyan seems to be sticking with its strategy of slowly shifting its portfolio to match the policies of Yale’s Swensen; this newest recruit from his office has specialties in venture capital, energy and commodities: [Roth</a> on Wesleyan Blog Archive New Chief Investment Officer](<a href=“New Chief Investment Officer – Roth on Wesleyan”>New Chief Investment Officer – Roth on Wesleyan)</p>
<p>[peHUB</a> Report: TPG Has Billions in Paper Losses on Four Big Deals](<a href=“http://www.pehub.com/74187/report-tpg-has-billions-in-paper-losses-on-four-big-deals/]peHUB”>http://www.pehub.com/74187/report-tpg-has-billions-in-paper-losses-on-four-big-deals/)</p>
<p>Not good news here. Based on where the bonds of these companies are selling it looks like they may have to write off the balance as well.</p>
<p>[Fortress</a>’ $5 Billion Buyout Loss Haunts Edens as Black Has Gain - BusinessWeek](<a href=“Bloomberg - Are you a robot?”>Bloomberg - Are you a robot?)</p>
<p>Add Fortress to TPG as PE firms that hopefully endowments are not invested in.</p>
<p>
</p>
<p>Ouch.</p>
<p>I suspect most of the big endowment managers have their brooms out and are taking advantage of market gains during the year to furiously sweep private equity embarrassments under the rug.</p>
<p>This is going to be another interesting year of endowment news as the fiscal year for most schools ends in two weeks.</p>