<p>Yale announced that their endowment decreased by 25%-although it seems that is just a guess. Personally, I think Harvard is being more honest and upfront about what is going on. No-one really knows what their stuff is worth and given that virtually none of these hedge funds and private equity funds will allow Harvard and Yale to withdraw money I think its safe to assume that things are real bad.</p>
<p>I know a lot of speculators who also love falling prices.</p>
<p>A december 16 article in the NYTimes about KKR-one of the biggest private equity firms-starts out "Buyout firms publicly listed funds are offering a glimpse of broader, otherwise hidden woes". Most private equity is hidden from sight but there are some like this KKR fund that are publicly traded and it is selling at an 88% discount to book value. Article goes on to say that "public listings do give investors in KKR's much bigger collection of private funds an idea of what some others are thinking".
Seems that Yale is being much more optomistic about the value of their alternative investments than this article would suggest.</p>
<p>sm74,</p>
<p>I think it is pretty unfair (and perhaps naive) to accuse Yale of excess optimism because of what happened to one KKR fund. </p>
<p>Surely you know that the term "private equity", like the term "hedge fund", covers such a wide range of investment strategies and activities that the term borders on meaningless?</p>
<p>If you don't understand this, I suggest you do some serious reading about the investment world before jumping to too many conclusions based on NO information.</p>
<p>I think Harvard was quite misleading in their own statements over the last two weeks. On a Friday, they "announced" a 22% decline in endowment, with a footnote saying that figure was inaccurate and signficantly understated the decline. Of course, the media ran with it and established 22% as the "official" number. </p>
<p>The next business day (Monday), Harvard quietly announced the real number, a 30% decline. Of course, the press had already moved on and the revised number was barely reported.</p>
<p>newmassdad, as events have shown, few honest firms are able to beat a down market for very long or regularly. It is highly probable that Yales PE and other unreported investments are also down significantly. Whether it was real estate or oil deals--down down down.</p>
<p>barrons,</p>
<p>You're kidding that no one can beat a down market? You most assuredly can. Just to use an example, cash works very well. </p>
<p>And I always thought that a 25% decrease is "down significantly" to use your words.</p>
<p>Look, I'm no fan of Yale or its endowment approach. Heck, they rejected my D a few years back (but her revenge is sweet, and another topic...), but I fundamentally object to bashing a fine institution just because their press release does not meet your expectations. We just don't know, and for most of us it just does not matter. They're private - they can report what they want. They don't owe me, you or anyone else (OK, IRS and perhaps the state of CT excepted) much of anything in the way of information.</p>
<p>What is difficult is to beat both up markets and down markets.</p>
<p>So does anyone know how Harvard's Endowment done vs El Erain's fund(s)/management at PIMCO?</p>
<p>Wow Newmass I don't know where to start. "They don't owe me, you, or anyone else much of anything". How about the people who donated money to the endowment with the expectation that their funds would support a cause in perpetuity. I help oversee some very small endowments and We would never take the kind of risk that these Universities do. I think parents who are considering one of these schools are owed an accuarate account of the schools finances. With 44% of the operating budget coming from endowments parents could be looking at a 30-40% decrease in payroll depending on how bad things are-thats going to have a significant impact on their kids education.</p>
<p>I think its odd that you call somebody naive who is questioning the accuracy of a college's numbers, particularly when that college will not divulge any information on what they hold. I think it would be naive and stupid to not be skeptical of Yale and Harvard just like it would have been naive and stupid not to be more skeptical of Bernie Madoff. My rule of thumb is if someone doesn't give you any information expect the worst. </p>
<p>In terms of the KKR information I am passing on what the New York Times wrote. Given the lack of information on what these alternative investments are worth they went to one of the few available resources and found that at one of the biggest and most respected private equity firms it is selling for 12 cents on the dollar. You and I can make our own conclusion from that. </p>
<p>Where I would agree with you is that Harvard and Yale are incredible institutions but unfortunately there has not been much oversight of the management of funds and I do think this is going to hurt them bably. </p>
<p>And thanx for the tip on doing some reading about investing. I'll work on that.</p>
<p>I don't fell bad for Harvard or Yale or worry about them. Harvard's investment return for the last ten years was approx 162 percent. They are also in a better position than we are to recover their investment as the economy does better in the future. Those of us who hope to retire in the next fifteen years are in a much more precarious position.</p>
<p>sm74,</p>
<p>If you feel that you are part of the Harvard or Yale community, you are of course entitled to consider any and all information you want in making your financial decisions. I don't see how that is inconsistent with what I said. It is also each institution's right to disclose or not disclose as it sees fit, and you can respond accordingly: donate or not; take your kid out if you want.</p>
<p>
[quote]
How about the people who donated money to the endowment with the expectation that their funds would support a cause in perpetuity.
[/quote]
If you're in this category, talk to your lawyer if you think there's a problem. Didn't get it in writing? Too bad. Life is full of disappointments and unrealized expectations. </p>
<p>sm74, there is a big difference between wanting or even expecting something from Yale versus implying that they have some obligation to give that "something" to us. </p>
<p>And I stand by my thought that to accuse them of misleading or dishonest information dissemination just because their investment strategy sounds like a publicly traded investment vehicle is curious at best. After all, do you accuse your mutual fund manager of being dishonest in their disclosures because they don't match the steep drops of a similar sounding fund? I hope not. I agree that one (your fund) has a stronger legal obligation, but please appreciate the point.</p>
<p>Almost every June 30, 2008 college annual report I've seen has jumped ahead in the management discussion and/or notes to address some of the October crash ramifications. One consistent theme I'm seeing is an attempt to describe how the college intends to value non-liquid assets. </p>
<p>All I'm seeing is a good-faith effort to apply rigorous accounting standards and honestly value these funds, given that they must ultimately rely to a large extent on the fund managers. It is important to note that the latest FASB guideline is quite clear that you should not be expected to value such securities as if there were a shotgun to your head forcing you to sell them TODAY. In other words, even the folks who write the accounting guidelines aren't suggesting that an entire portfolio be revalued to the darkest hour of a transient freeze in the credit markets.</p>
<p>I think that the colleges have been quite forthcoming in their financial reporting.</p>
<p>Edward Jay Epstein writes in the Huffington Post that according to a source close to HMC the value lost in the Endowment is atleast $18 Billion or 50%. Takes alot of guts to accept those bonuses when you know you have just lost $18 billion.</p>
<p>In terms of valuing assets lets take a look at Cerberus who just put out word that they are not allowing redemptions. I don't know if Cerberus is one of Harvards investments but it is one of the largest private equity firms. Its major holdings include Chrysler(Daimler-Benz values their interest in Chrysler at 0), GMAC which along with Chrysler is begging for serious bail-out money, and Mervyns(recently bankrupt).</p>
<p><a href=“http://www.nytimes.com/2009/05/24/business/24golf.html?_r=2&pagewanted=1[/url]”>http://www.nytimes.com/2009/05/24/business/24golf.html?_r=2&pagewanted=1</a></p>
<p>Interesting glimpse into where University Endowment money has been not so wisely invested. Makes you wonder where else they have been investing and what it’s really worth.</p>
<p>
</p>
<p>This is the only reference in the entire article. Maybe I understand even less than I thought I did, but just because the firm’s investors include these endowments does not mean that Harvard and Princeton’s money absolutely went into these projects, does it? </p>
<p>Interesteddad?</p>
<p>I’m still working on the Finance 101 course that I was told to take but i’ll give it a shot. Private Equity firms like Lubert in this case raise money from endowments and pensions into a “fund”. Lubert will then use that fund on a pool of investments and the return of those investments in aggregate goes to the endowment. Many of the PE’s that I see have done several funds. Most start out with Fund 1 with say $100million. That fund does well then 2 years later they come out with fund2 and raise $400million. What seems to have happened is that these initial funds were doing so well that the demand from endowments became very large and when the peak happened in 2005,6, and 7 the newest funds were raising billions of dollars. Unfortunately, the biggest chunk of cash hit just as the bubble burst.</p>
<p>So to answer your question if the endowments just invested in the early funds and avoided the later ones then yes they might have come out ok. In this case I believe Ginn has been around for some time so it is probably in all the funds that Lubert has raised so if endowments invested with this PE it is pretty certain that some Ginn properties are in there.</p>
<p>well done! Maybe if I had more money and wasn’t paying it all into tuitions, I’d have a better chance of understanding this stuff personally. As it is, it’s pretty 101 around here. In december, that worked out just fine by me.</p>
<ol>
<li><p>The Lubert-Adler people are incredibly smart. Lots of incredibly smart people have lost a lot of money in the past 18 months, but I wouldn’t bet against them long term. </p></li>
<li><p>In the private equity world, “100% of the cash for 80% of the profits” is a fairly normal deal, although it’s a little more complex than that. The “money investors” provide all of the cash, and get all of the return until they have gotten their money back plus a fixed on-the-high-side return (somewhere in the range of 8-20%). After that, the people who are really running the project get 20% of the returns, and the money investors get 80%.</p></li>
</ol>
<p>If this lawsuit runs its course I think we’ll get a better picture of what is going on in the very private world of private equity and University endowment investment practices. There are a number of troubling allegations that were reported and one of the most troubling from the perspective of endowment investors is the story about the private equity firm and Ginn selling lots to themselves and turning around immediately and selling them for a much higher price. That money, obviously, should have gone to the endowment.</p>
<p>[PE-backed</a> bankruptcies (The Deal Magazine)](<a href=“http://www.thedeal.com/newsweekly/dealwatch/pebacked-bankruptcies.php]PE-backed”>http://www.thedeal.com/newsweekly/dealwatch/pebacked-bankruptcies.php)</p>
<p>Nice recap of how well these smart private equity firms have been doing lately.</p>