<p>I dont see my questioning Harvard’s finances as bashing per say. But yes, they are perceived as number one and if they don’t know what they’re doing with their resources, what’s that say about the rest of the bozo’s out there??</p>
<p>One of the problems with firing all these money managers or whomever at Harvard is that many of them who got them into these things are long gone. That was another interesting part about the article. When the Harvard fund was being questioned, some just took their toys and left (and in fact, created their own hedge funds that Harvard sunk money into – isn’t THAT special?)</p>
<p>So it’s not bashing Harvard, it’s a sort of fear that if even the wealthiest of schools are hitting the skids, what happens to my kids LAC or your research university that doesn’t have Harvard’s name OR money? And truthfully, it doesn’t bode well for the course this country is on if when we admit we need to live within our means and make some cuts as a nation, Harvard is still refusing to acknowledge that what they need to make are CUTS and big ones. Where’s the conversation to this? If that VF article correctly described the situation, there’s a lot of finger pointing but a lack of doing anything about it. For an institution so respected as Harvard, you would think they’d be doing more to be transparent. We’ve been swindled as a nation and we surely have had enough of all the financial secrets that seem to make some very wealthy, while slaughtering others.</p>
<p>Type the name of the college, i.e. Amherst College, into the search box, and you’ll get their most recent bond issues and the ratings for each. A taxable bond issue for a college like Amherst draws attention. I don’t believe they have ever issued one. Each bond issue is discussed in the year-end financial reports. For example, Swarthmore’s last bond issue was in April 2008. It was a re-finance – issuing a fixed rate bond to pay off a variable rate demand bond used for a new dorm a couple of years back.</p>
<p>There are currently five liberal arts colleges with Moody’s Aaa ratings: Pomona, Swarthmore, Grinnell, Wellesley, and Berea. There are a couple dozen universities, but I can’t find the list offhand.</p>
<p>If you want to read a rating report, download this PDF of Standard & Poor’s Global Outlook on Higher Education from October 2008:</p>
<p>Harvard is far from broke… however, the sort of thinking above is what gets private bodies rich in assets in a lot of financial trouble. </p>
<p>Cash and liquid assets are king, not just “assets.” </p>
<p>You can’t pay bills with real estate or other non-liquid assets. Yes you can use such physical assets as collateral on a balance sheet to secure some loans/bonds, but only to a point (a creditor can’t easily forclose on Harvard Yard) and you still need cash to pay those bond/loan payments. </p>
<p>An organization may be worth a ton on paper, but depending on what those assets are they can still be in a lot of trouble. The article highlights this by pointing out how a lot of private schools have their assets tied up in non-traditional investments such as private equity stakes. You can’t just call up your stock broker and cash something like that in when you need some cash. Many schools tried to sell such interests to free up some cash, but nobody wanted to buy so the schools were left holding the bag. Sure it still means they have those billions in their ‘endowment’ but it’s not paying the bills. </p>
<p>Concequently all this talk on this thread about “oh this school has X per student in their endowment vs. Y per student for another school” is totally meaningless… espeically during difficult financial markets. When it comes to budgets and paying the bills a school with 1 billion in liquid assets can be far better off than one with 10 billion ‘on paper.’</p>
<p>There’s no doubt that when you’re on the pedestal you have the farthest to fall. In this case I don’t think it’s potshots. For me, anyway, it’s disbelief from the perspective of a financier that such a powerful, sophisticated organization could have been this stupid. </p>
<p>What they did was so fundamentally stupid on so many levels it’s just jaw dropping stuff. Heads would be rolling if this were a public company. From the top down, this was mismanaged to an extent that would be hard to fathom from much lesser organizations.</p>
<p>I’m sure not laughing. this is serious stuff for everryone who’s part of this.</p>
<p>I didn’t actually mean to bash Harvard. It’s one of the greatest universities on the planet. I just think its problems are a fraction of those faced by thousands of other schools across the country which don’t have a fraction of Harvard’s resources. It’s hard for me to believe that Harvard won’t recover economically – and recover at a much, much quicker rate than the rest of the country’s hurting universities.</p>
<p>Dstark, like with all of the other organizations, I think some folks earned their bonus and others didn’t. Interestingly, AIG has long had clawbacks, most there lost lots of money they had left in the firm over years. Totally fair. But the guys who were asked to stay on and help clean up the mess they did not make with a promise of having their contracts fulfilled deserved their bonuses IMO (and in that of the Obama administration).</p>
<p>And I think the Harvard guys forced out because of their salaries was a sad event that caused their current mess.</p>
<p>I would most definately look to have an entirely new Board for HMC for a couple of reasons.
I do not believe the 30% number reflects reality.
Moreover, I do not believe the Board has an idea of what the true value of the endowment is which is the real indictment. In order to know the true value they would have to know the value of private investments(which have over time made up a bigger and bigger share of the endowment). My understanding of how they get these values - because there is no public market - is that the private equity companies simply tell them what they are worth. So all the investment and spending that the U’s having been doing over the past 10 years has pretty much been done based on U’s trusting the word of these private equity companies.
The Board is there to safeguard the donations of generous donors-I think they have been asleep at the wheel and they really need some new people to come in and set up some systems that will ensure that the U has a better handle on the true value of their investments.</p>
<p>I’m sorry, I had a brain fade. That should be six. Amherst continues to have a Aaa rating also, although their “outlook” was changed to “negative” with the recent bond issue, effectively putting them on notice that any more borrowing will cost them their Aaa rating.</p>
<p>Also, it’s important to note that you really have to compare bond rating within narrow tiers of schools. The top ranked colleges are top ranked because they have been in the strongest financial position (i.e. bond ratings, etc.) for the longest time. Thus, you would never expect Lafayette College to have Swarthmore’s Aaa bond rating. That would be unreasonable for Lafayette, given the size of their endowment, their admissions selectivity, etc.</p>
<p>It’s interesting in the S&P reports that they refer to a low acceptance rate as “admissions flexibility”, obviously meaning that the large number of applicants gives the school the ability to enroll a different class (for example, a class that generates more net tuition revenue) should they choose to do so.</p>
<p>On this issue of firing college managers: Since everyone missed the boat, I’m not sure it’s entirely fair to fire college presidents and investment managers and board members for endowment losses. The market collapse pretty much sunk all boats. I do think failure to provide adequate liquidity is inexcusable. They could have put some of these endowments in a passbook saving account and been able to meet liquidity needs for centuries. I mean…that is the most basic question any endowment manager should ask, “What are my annual cash needs?” </p>
<p>It seems to me that the investment managers and board of any school with a billion dollar endowment that is borrowing money to meet payroll should just automatically resign in disgrace. My cat could manage a billion dollar endowment to provide sufficient cash for payroll. Watching some of these guys flitter from TV talk show to TV talk show patting themselves on the back is surreal.</p>
<p>Could not agree more re cash flow and resignations. </p>
<p>Losing 20% + of the endowment may have been within their risk reward profile objectives as set by the university. While I don’t agree with that level of risk for institutions, you can’t blame the portfolio managers for the collapse if they were investing within parameters which were set aggressively.</p>
<p>On the other hand, cash flow is also a part of their jobs - and an inability to manage their cash flow is inexcusable - and should get them fired.</p>
<p>I think people were drinking hedge fund/private equity Kool-Aid, but the question is whether for universities like Harvard this is just a liquidity problem that has to be worked through or whether they need a broader systemic fix. If I were a leader of one of these institutions, even if it were “only” a liquidity problem, I’d use it as an excuse to really cut the fat that no one felt empowered to cut before, especially if doing so meant goring some politically correct oxen. [Am I mixing metaphors here?]</p>
<p>On that point Shawbridge there was an excellent article in the WSJ today about how a bunch of the endowment spending binge went to building up ethnic, gender, and sexual programs. Point of article was good luck cutting back on those without a serious cat fight.
To further plug the WSJ, another good article was on Cerberus, one of the largest hedge fund/private equity groups out there and proud owners of Chrysler, GMAC, and Mervyn’s-sorry former owners. Cerberus sent a letter to their investors basically saying they had 2 choices-they can get out now in which case Cerberus will try and sell some assets(and guess what those assets aren’t worth anything so you aren’t going to get much of anything) or you can stick with them for another 4 years. I wonder what people are going to choose?</p>
<p>Message #82 above tells how to go to Moody’s type the name of a college in the search box and get the most recent bond transactions and ratings. This will cover most (but not quite all) of the financially solid schools.</p>
<p>shawbridge:</p>
<p>I agree with you. I’m disappointed that more schools aren’t taking advantage of a perfect opportunity to do some deeper budgetary pruning. For the most part, the wealthiest colleges are avoiding the hard decisions that might involve shifting institutional priorities. If the market stays in the tank, they won’t be able to avoid those decisions for the following year. If the market stabilizes, they will be able to avoid those decisions and will have, IMO, missed an opportunity to improve their schools through prioritized pruning.</p>
<p>BTW, Harvard Prez. Faust is disputing Vanity Fair’s claim that Harvard’s endowment will only be off 25%. In an e-mail to Vanity Fair, she writes that Harvard still believes that 30% will be the actual number when all the private equity valuations are factored in:</p>
<p>The level of the problem is overstated. While all of the presidents of well-endowed colleges are concerned about commitments to private equity and other investment funds, and while the fund principals will tell you that these commitments are ironclad, it is highly likely that these commitments will be whittled down to size through a combination of litigation (threatened or otherwise), and negotiation, occuring over the next several years. </p>
<p>No judge is going to side with the hedge funds or private equity guys against the University of Virginia or Michigan. There simply won’t be any damage done by breaching the contract. </p>
<p>That doesn’t change the basic problem that values are down significantly (probably more than admitted) and the schools are not used to living through downturns.</p>
<p>dadx-- As I noted above, there won’t be any need for litigation (threatened or otherwise) or a whole lot of negotiation to deal with the commitments. Anyone who tries to enforce a commitment now will never raise another fund again, and no one has anything they are prepared to invest in, anyway. (Not to mention they can’t get bank financing to support the return they want to show on their investments.)</p>
<p>The same thing happened in 2000-2001. It was handled by (a) extending the period during which the funds could call commitments and make investments by 3-4 years, (b) releasing some of the commitments, and (c) paying some extra mangement fees to keep the fund advisors solvent. Since the market recovered then, it turned out to be no big deal. If the market doesn’t recover over the next few years, this won’t work.</p>