<p>[The</a> Harvard Crimson :: News :: HUDS To Trim Breakfasts](<a href=“http://www.thecrimson.com/article.aspx?ref=528206]The”>http://www.thecrimson.com/article.aspx?ref=528206)</p>
<p>But they’ve transferred some of the savings to “brain break”.</p>
<p>Anyone have any idea how Rice is doing financially?</p>
<p>^^Rice is hurting too:</p>
<p>[The</a> State of the University - News](<a href=“http://media.www.ricethresher.org/media/storage/paper1290/news/2009/04/17/News/The-State.Of.The.University-3714332.shtml]The”>http://media.www.ricethresher.org/media/storage/paper1290/news/2009/04/17/News/The-State.Of.The.University-3714332.shtml)</p>
<p>Excerpt:</p>
<p>However, despite the university’s coordinated efforts, Rice is still facing challenges. The endowment, which represents 45 percent of university spending, is down 20 percent since spring of last year, according to Vice President for Finance Kathy Collins. </p>
<p>Large endowments at universities throughout the country fell an average of 20 percent between July and November of last year, according to The Chronicle of Higher Education. Though Rice’s endowment is doing markedly well compared to the stock market, which is down 37 percent from its place in April of last year, its decline still places significant limitations on university spending, since endowment spending is capped at 6.5 percent of the fund’s three-year running average, Collins said. </p>
<p>“We have benefited greatly over the years from having a very large endowment,” Leebron said. “It also means that when things go very badly, there is a larger set of adjustments to make.” </p>
<p>The university is currently budgeting based on a model that sees the endowment fall an additional 5 percent this year, and then gain 5 percent next year before returning to historic growth rates. Leebron noted that such a scenario was a planning model, not a prediction. </p>
<p>“We’re now going on the basis of what I used to say were pessimistic assumptions, and I now say are more realistic assumptions,” he said. </p>
<p>Leebron suggested that additional budgetary cuts would be made in the next three fiscal years in order to manage the university’s finances.</p>
<p>The question is whether this is a liquidity problem or a permanent problem. I don’t know.</p>
<p>Harvard in essence ran its own internal hedge fund for years on the fixed income side. Now, I’m not sure what is done in-house and what they outsource to Convexity and others. Was it all outsourced? Or were they still holding lots of positions when the proverbial stuff hit the fan. In contrast, Princeton outsourced. I wonder if that will improve their lot relative to Harvard.</p>
<p>What I see is that some of the hedge funds are doing reasonably well this year, so the endowments should come back a bit. </p>
<p>Not clear if we’ll see private equity kick back in until it is easier to borrow. But, hypothetically, doing leveraged transactions and giving big incentives well down into the managerial ranks should work again when acquisition debt becomes available/inexpensive. </p>
<p>That suggests a short-term liquidity problem, but I’m not close enough to know what they hold. I’ll be having lunch with a friend who used to work at Harvard Management and when his group left years ago, Harvard was the first big investor in their fund. (His fund was selling in 2007-8 and finding it hard to find investment opportunities.) Maybe I’ll learn something.</p>
<p>[Endowment</a> Losses From Harvard to Yale Leave Universities Poorer - Bloomberg.com](<a href=“Bloomberg Politics - Bloomberg”>Bloomberg Politics - Bloomberg)</p>
<p>Bloomberg has been doing a real good job of following this story. Pension funds are beginning to report results for June 30 fiscal year and interesting that California State and Teachers funds are reporting private equity and real estate losses of 30-40%.</p>
<p>Harvard is not all outsourced at all. It’s been part-in, part-out for many years. Convexity was fairly late among those who struck it out themselves technically but remained managers of endowment money. Adage is another one that has been independent for over a decade.</p>
<p>Comments in article by Yale’s Levin and others seemed about as pessimistic as I have heard. Levin saying it would take 10 years to get Yale’s endowment back to where it was.</p>
<p>Nobel prize winner Robert Merton summed it up best:
Administrators didn’t adequately understand the impact that endowment losses would have on school finances and overlooked the risk managers were taking, said Merton, who wrote a paper titled “Optimal Investment Strategies for University Endowment Funds.” </p>
<p>No kidding.</p>
<p>Had lunch with an ex-Harvard guy whose funds Harvard has invested in. He’s pretty clear that a) the HYP problem is a short-term liquidity problem; and b) lesser universities who haven’t been able to get into funds like his are now doing so as PE firms raise money.</p>
<p>I gather that it is just becoming possible again to do PE deals with lesser leverage (but some leverage) lower down in the food chain (mid-size deals).</p>
<p>
</p>
<p>The liquidity problem may be short term, but the interest expense and debt service on the borrowing to cover operating expenses will be a ball n’ chain on the annual budgets for years to come.</p>
<p>I think this whole predicament is a really really good wake up call to these universities and officials who were getting bolder and bolder with spending every single year.
Of course, every Ivy is going to be deeply impacted with the exception of possibly Penn. however, Harvard will be impacted the most. It relied SO much on its endowment to run the school. MUCH more so than just about all the ivies.
In this sad predicament, Penn will fare the best as it relies the least on its endowment for regular annual operating expenses.
Also, harvard and some of these other schools got WAY too bold. Most of their huge endowments are from donations that are TIED DOWN meaning THEY DO NOT go to use in financial aid, etc based on what Harvard wants. They go to what the donor wanted and signed on. As this is the case, Harvard is in some DEEP DEEP trouble. With their ludicrous financial aid program, self-subsidizing even more of their potential revenue for operating costs, and their heavy debt, which according to Standard & Poor’s estimate, could take 517 million dollars PER YEAR till 2038 to pay off, the Harvard education and way of life will have to be tarnished SOO much. A lot of poorly-planned and now unfunded construction will have to sit idle.
If anything, this just shows how CRAZY schools can get with spending and how stupid it is to go overboard with comittments, spending, and building/making promises as Harvard did.</p>
<p>edit: which means, again, that the whole notion of endowment per capita/per student is a student and unreliable piece of data. we have NO clue how the endowment is tied down and just how much the school can even use on academics, student life, etc.</p>
<p>I hate to be pollyannish, but I wonder if we are wearing a bit too much sack cloth here. </p>
<p>If the schools use the crisis to cut fat (and as I’ve said, the fat is there at H anyway), they ought to be able to live on a lower percentage of the returns (when they exist) from the endowment. But, won’t one year of good returns enable them to retire the debt? They have taken on an additional $2.5 billion in debt to cover short-term liquidity on assets of $25 billion. If, miracle of miracles, two or three years from now they had a 20% year, wouldn’t they be able to retire all of the liquidity-induced debt? </p>
<p>I think the fundamentals will make it a lot harder to have a 20% year, but these things do go in cycles, sometimes much faster than we expect. What am I missing?</p>
<p>I do think that Hope2getrice’s comment is valuable. The endowment per undergraduate may not be a particularly meaningful thing at a big research university (and, as a result of restrictions, may not even be so meaningful at LACs).</p>
<p>I make no presumption about Harvard’s finances. At the top LACs, the impact of restrictions on various endowment gifts is so minor as to be totally inconsequential. The colleges have no problem spending endowment returns on whatever they choose to spend it on. These colleges aren’t run by fools and they’ve been building sufficient flexibility into endowment gifts for so long that it is simply an non-issue – in part because the endowments are so much larger than the original gifts.</p>
<p>The issue is purely one of anticipated real returns (after inflation) to preserve the spending power of the endowment in perpetuity and the agreed upon endowment spending percentage, which is often contrained by state law. For example, it is against Pennsylvania law for a non-profit college to spend more than 7% of endowment in a single year.</p>
<p>
</p>
<p>Yes, but it’s all relative. A school that didn’t have liquidity issues and the need to borrow to pay the light bill could take that 20% year and put it directly to the bottom line and/or hire new professors or whatever. Any college that didn’t have to borrow operating capital as the result of fiscal mismanagement will be in relatively better shape. Swarthmore, for example, had over four years of endowment spending invested in cash and bonds and T-bills the day the market crashed. They are having to adjust budgets to accommodate endowment losses, but they still had four years of cash in the bank, without having to liquidate any stock positions.</p>
<p>I think this whole predicament is a really really good wake up call to these universities and officials who were getting bolder and bolder with spending every single year.</p>
<p>Hope, I think you are right that this is one of the most irresponsible actions that took place, and I think one of the most aggressive spenders and borrowers was Harvard. I think you would have to largely blame Mr. Summers for that. It’s interesting to me that many colleges, in order to keep up with Harvard, also became much more aggressive with their spending. Rice had a policy in place from it’s origin(actually due to its endowment Rice did not charge tuition at all for a long time ) that it was not allowed to take out debt. In 1999 they changed that policy in their quest to keep up appearances as a top tier school. What did they spend the debt on-among other things a new baseball field.</p>
<p>
</p>
<p>Havard is no different. Because of restrictions, Yale returned a $20 million gift by Lee Bass to set up an interdisciplinary program for the study of Western civilization.</p>
<p>
</p>
<p>So, the issue is relative positioning of colleges. OK. In the case of Harvard, it will have to cutting cost in the short run, which is hard discipline for a big spender. But, I don’t feel so worried about Harvard’s positioning. </p>
<p>On another note, does anyone know the cost of truly need-blind admission and full need financial aid up to parents’ income of $180K? How much does that cost Harvard annually? Princeton? Do Amherst, Williams and Swarthmore have need-blind aid up to the same high level? What do their respective financial aid policies cost them?</p>
<p>Honestly, if Harvard is already cancelling “hot breakfasts” and Free coffee…it just shows how s-c-r-e-w-e-d the school really is…if such tiny costs are even being cut.</p>
<p>I wouldn’t read that much into the hot breakfast thing. If my daughter and her roommates are any indication, very few students got up in time for breakfast anyway. Since it was so seldom used, when the crunch came someone probably did the math and said if we cut out hot breakfasts we can save enough money in a year that the food service can layoff one or two fewer employees than they would have otherwise. Jobs are saved and better service provided by eliminating somethng that was hardly used in the first place.</p>
<p>I’ve been a manager implementing budget cuts myself, and you look for ways to shave off as much unneeded expense as you can here and there and thus save as many jobs as you can. It’s just part of being a good manager.</p>
<p>Second coureur. In four years, my S never ate a hot breakfast, or indeed, any breakfast. He says he used to take back packets of cereals and eat them with some milk from his fridge, but I doubt it, since he would roll out of bed and head straight for class. And we had to pay for a fixed meal plan, no matter how much he did not eat.
The amount of free food at Harvard is unebelievable. There were receptions with lavishly catered food at 4pm for undergrads who ordinarily would be headed to the cafeteria at 5:30pm. Huge waste all around.</p>
<p>Hope2getrice, I think Harvard has built up a level of administrative bloat that is impressive. There are people whose function is hard to detect, even upon questioning, and lots of room for cutting. I don’t think they have been looking hard at efficiency in management until now, which is reflected in the small by what coureur and marite have said, but I’m confident that there are much bigger cost-cutting opportunities that will not damage the mission of the institution. I suspect the same is true of many of the schools with big endowments, but I have less information to support that belief.</p>