Harvard--Had No Idea Things Were This Bad

Parent Cafe
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<p>
[quote]
Now, Vanity Fair’s Nina Munk finds America’s oldest university suddenly at risk of not being able to keep the lights on. Over the past year, Harvard’s endowment has collapsed (it lost $8 billion between last July and October), its fundraising has declined, and its construction cranes have been idled. Gripped by the worst economic crisis in its history, Harvard is in trouble, and no one can decide who’s to blame.

[/quote]
</p>

<p>And this....</p>

<p>
[quote]
Munk asked the hedge fund manager to look at Harvard’s finances and assess the extent to which its endowment will be able to keep pace with its immovable costs. The hedge fund manager’s conclusion: “They are completely ****ed.”

[/quote]
</p>

<p>Rich</a> Harvard, Poor Harvard: Vanity Fair | Vanity Fair</p>

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<p>There is another good article linked to this one on the overall state of the Ivies:</p>

<p>[The</a> Sad, Suffering Ivy League: Thomas Kaplan | Vanity Fair](<a href=“http://www.vanityfair.com/online/politics/2009/07/the-sad-suffering-ivy-league.html]The”>http://www.vanityfair.com/online/politics/2009/07/the-sad-suffering-ivy-league.html)</p>

<p>Pretty sad…</p>

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<p>hmom5, thanks for the link.</p>

<p>The UCs don’t look so bad. ;)</p>

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<p>might be a lot fewer cuts at sons public U</p>

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<p>First, all of the Ivies should not be grouped together as having woefully underperformed. Some did, but certainly not all. </p>

<p>Two, I think that the quality of the reporting in this story is typical of Vanity Fair. Makes for a good headline that will get a lot of attention, but the presentation is very incomplete and, as a result, lacks the authenticity to make for a substantial statement. There is nothing about context and size of budgets and sources of income and financial aid and ……</p>

<p>Third, the world got rocked financially in the last twelve months. Before that, HYP et al had a pretty great run that I think almost any college in the USA would’ve loved to have had. Even after giving back a quarter of that, there is still an enormous amount of money that these endowment managers can profitably invest. I do agree, however, that there is a cash flow problem due to the overcommitment to private equity and the too large dependence by some schools to rely on their endowments to cover operating expenses.</p>

<p>Fourth, it will be interesting when the NACUBO endowment numbers come out this winter so that we can compare the investment performance of these various schools. Undoubtedly, there will be highly differentiated returns at colleges across America and, in extreme cases, some realignments could result. Periods of great dislocation like this can cause great and awful investment performance that can impact a school for years, if not decades, to come.</p>

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<p>Maybe this is why Harvard and a few of the other top schools are completely Fu@@@@.</p>

<p>Barrons ran a nice article too.</p>

<p>Illiquid and capital calls…</p>

<p>[Gonzalo</a> Raffo InfoNews: THE BIG SQUEEZE / BARRON´S ( HIGHLY RECOMMENDED READING )](<a href=“http://gonzaloraffoinfonews.blogspot.com/2009/06/big-squeeze-barrons-highly-recommended.html]Gonzalo”>THE BIG SQUEEZE / BARRON´S ( HIGHLY RECOMMENDED READING ) - Gonzalo Raffo InfoNews)</p>

<p>"In the near term, endowment chiefs may be wrestling with how to handle commitments to private-equity and real-estate funds. At Harvard, investment commitments totaled $11 billion on June 30, 2008; at Yale, $8.7 billion, and Princeton, $6.1 billion. These commitments are especially large relative to shrunken endowments. Harvard’s endowment could end this month in the $25 billion range; Yale’s is about $17 billion, and Princeton’s, $11 billion, after investment declines, yearly contributions to university budgets and new gifts from alumni and others. "</p>

<p>and </p>

<p>"The outlook is challenging for the big Ivy League endowments because many of their investments are in illiquid private- equity and real-estate funds or commodity-related assets such as timberland, whose estimated value might not reflect today’s steeply discounted market prices. Yale and Princeton, for instance, have invested roughly half their endowment assets in private-equity deals, real estate and commodities, a far cry from the 65%-to-35% blend of stocks and bonds favored by many individuals. If the three Ivies valued such assets at market-clearing prices, their endowment losses for fiscal 2008-09 could approach 35%.</p>

<p>It is tough for outsiders to assess the big university endowments, given limited public disclosure, and endowment directors at Harvard, Yale and Princeton declined to speak with Barron’s. The endowments reveal their asset allocations, but not individual investments or outside managers. Most of their assets are farmed out, with endowment pros like Swensen overseeing the selection process while monitoring risk and results.</p>

<p>We have assumed that private-equity, real-estate and commodity investments lost about 50% in the past year, based on market benchmarks. Major commodity indexes are off 50%, as are independent oil and gas stocks. The MSCI index of real-estate investment trusts has lost 45%, and private-equity investments are trading for 50 cents on the dollar, or less. The Standard & Poor’s 500 index has fallen 27%.</p>

<p>Timberland, for instance, looks significantly overvalued and could drop sharply as investors “race to the exits,” Barron’s Roundtable member Oscar Schafer said in our midyear update two weeks ago (“Too Far, Too Fast,” June 15)."</p>

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<p>I don’t really see much of a story here other than it would appear some folks seem shocked to realize that Harvard doesn’t exist in some sort of magic fairy dust bubble.</p>

<p>Any organization that relies heavily on endowment income will obviously suffer severely during times when that endowment is losing, rather than gaining, value. In that regard Harvard is no different than any other such organization. </p>

<p>Suggesting that they’re “suddenly at risk of not being able to keep the lights on” is just a bit silly, but yes clearly they’re hurting and have been forced to reset attitudes on what constitutes reasonable rates of growth and endowment expenditure.</p>

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<p>While I do think that the article drifts off course and uses language that is over the top - I do think that there are a few valuable points to be taken away:</p>

<p>1) Colleges need to rethink their investment policies - trying for double digit returns year over year means accepting much larger potential losses as well. Aiming for that level of return is not appropriate for a university in my opinion.</p>

<p>2) Cash flow is a basic finance concept being taught in their business schools - the same rules apply to the universities.</p>

<p>3) Matching Assets and Liabilities is another basic finance concept that they lost track of</p>

<p>Bottom line - while I don’t generally like Cramer - he does sum it up very well with </p>

<p>“Bulls make money, bears make money, pigs get slaughtered.” </p>

<p>As Hawkette said above - they did not all do as badly as Harvard - from the second article here are their losses in declining order:</p>

<p>Harvard University Officially, projected at 30 percent, though a source told Munk the decline will actually be only 23 to 25 percent</p>

<p>Princeton University Decline this year: 30 percent (projected)</p>

<p>Brown University Decline this year: 30 percent (projected)</p>

<p>Cornell University Decline this year: 26 percent (through May 31)</p>

<p>Yale University Decline this year: 25 percent (projected)</p>

<p>Columbia University Decline this year: 22 percent (through March 31)</p>

<p>University of Pennsylvania Decline this year: 19.1 percent (through Dec. 31)</p>

<p>Dartmouth College Decline this year: 18 percent (through Dec. 31)</p>

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<p>For reference in this discussion, here are the per capita numbers from 6/30/08. No question that these are significantly changed today. </p>

<p>Rank , Endowment Per Capita , School , ( Rank in Total Assets ) Total Assets , Total Enrollment</p>

<p>1 , $2,227,979 , Princeton , ( 4 ) $16,340,000,000 , 7,334
2 , $1,996,682 , Yale , ( 2 ) $22,870,000,000 , 11,454
3 , $1,898,323 , Harvard , ( 1 ) $36,556,000,000 , 19,257
4 , $1,159,664 , Pomona , ( 33 ) $1,794,000,000 , 1547
5 , $1,012,463 , Amherst , ( 38 ) $1,706,000,000 , 1685
6 , $985,225 , MIT , ( 6 ) $10,069,000,000 , 10,220
7 , $947,686 , Swarthmore , ( 47 ) $1,413,000,000 , 1491
8 , $889,964 , Grinnell , ( 44 ) $1,472,000,000 , 1654
9 , $887,014 , Caltech , ( 31 ) $1,892,000,000 , 2,133
10 , $883,675 , Williams , ( 32 ) $1,808,000,000 , 2046
11 , $879,268 , Rice , ( 18 ) $4,610,000,000 , 5,243
12 , $869,477 , Stanford , ( 3 ) $17,200,000,000 , 19,782
13 , $676,891 , Wellesley , ( 41 ) $1,611,000,000 , 2380
14 , $625,748 , Dartmouth , ( 20 ) $3,660,000,000 , 5,849
15 , $537,613 , U Chicago , ( 11 ) $6,632,000,000 , 12,336
16 , $530,640 , Notre Dame , ( 13 ) $6,226,000,000 , 11,733
17 , $484,266 , Bowdoin , ( 79 ) $831,000,000 , 1716
18 , $465,198 , Claremont McK , ( 104 ) $528,000,000 , 1135
19 , $450,360 , Duke , ( 14 ) $6,124,000,000 , 13,598
20 , $445,680 , Haverford , ( 105 ) $521,000,000 , 1169
21 , $445,677 , Smith , ( 49 ) $1,366,000,000 , 3065
22 , $435,402 , Emory , ( 15 ) $5,473,000,000 , 12,570
23 , $401,819 , Northwestern , ( 8 ) $7,244,000,000 , 18,028
24 , $399,791 , Wash U , ( 17 ) $5,350,000,000 , 13,382
25 , $373,184 , Bryn Mawr , ( 89 ) $668,000,000 , 1790
26 , $363,735 , Hamilton , ( 88 ) $670,000,000 , 1842
27 , $354,000 , Middlebury , ( 73 ) $885,000,000 , 2500
28 , $346,531 , Vassar , ( 77 ) $849,000,000 , 2450
29 , $346,354 , Macalester , ( 90 ) $665,000,000 , 1920
30 , $341,530 , Harvey Mudd , ( 131 ) $250,000,000 , 732
31 , $336,354 , Brown , ( 24 ) $2,747,000,000 , 8,167
32 , $329,665 , W&L , ( 83 ) $719,000,000 , 2181
33 , $329,509 , U Penn , ( 12 ) $6,233,000,000 , 18,916
34 , $323,192 , Carleton , ( 93 ) $648,000,000 , 2005
35 , $321,371 , Colby , ( 95 ) $600,000,000 , 1867
36 , $321,128 , U TEXAS , ( 5 ) $16,111,000,000 , 50,170
37 , $315,471 , Columbia , ( 9 ) $7,147,000,000 , 22,655
38 , $299,283 , Davidson , ( 107 ) $501,000,000 , 1674
39 , $297,459 , Vanderbilt , ( 22 ) $3,524,000,000 , 11,847
40 , $274,333 , Oberlin , ( 81 ) $761,000,000 , 2774
41 , $271,970 , Cornell , ( 16 ) $5,385,000,000 , 19,800
42 , $247,800 , Colgate , ( 85 ) $704,000,000 , 2841
43 , $211,545 , Yeshiva , ( 50 ) $1,345,000,000 , 6,358
44 , $202,359 , Wesleyan , ( 92 ) $652,000,000 , 3222
45 , $200,960 , U Tulsa , ( 78 ) $837,000,000 , 4,165
46 , $188,523 , U VIRGINIA , ( 19 ) $4,573,000,000 , 24,257
47 , $185,451 , U Rochester , ( 37 ) $1,731,000,000 , 9,334
48 , $184,738 , Wake Forest , ( 56 ) $1,254,000,000 , 6,788
49 , $184,494 , U MICHIGAN , ( 7 ) $7,572,000,000 , 41,042
50 , $179,399 , Case Western , ( 34 ) $1,766,000,000 , 9,844
51 , $164,646 , Lehigh , ( 62 ) $1,127,000,000 , 6,845
52 , $160,843 , Bates , ( 129 ) $267,000,000 , 1660
53 , $148,186 , Tufts , ( 46 ) $1,446,000,000 , 9,758
54 , $145,362 , Texas Christian , ( 54 ) $1,260,000,000 , 8,668
55 , $143,075 , TEXAS A&M , ( 10 ) $6,659,000,000 , 46,542
56 , $133,508 , Brandeis , ( 84 ) $712,000,000 , 5,333
57 , $127,932 , Johns Hopkins , ( 25 ) $2,525,000,000 , 19,737
58 , $126,235 , SMU , ( 48 ) $1,367,000,000 , 10,829
59 , $118,852 , Boston Coll , ( 40 ) $1,631,000,000 , 13,723
60 , $108,645 , Rensselaer , ( 80 ) $793,000,000 , 7,299
61 , $107,429 , USC , ( 21 ) $3,589,000,000 , 33,408
62 , $101,782 , Carnegie Mellon , ( 63 ) $1,068,000,000 , 10,493
63 , $98,488 , Tulane , ( 66 ) $1,036,000,000 , 10,519
64 , $92,615 , Worcester , ( 118 ) $385,000,000 , 4,157
65 , $92,324 , Pepperdine , ( 86 ) $700,000,000 , 7,582
66 , $87,850 , Clark , ( 127 ) $282,000,000 , 3,210
67 , $86,380 , U PITTSBURGH , ( 28 ) $2,334,000,000 , 27,020
68 , $83,843 , U NORTH VAROLINA , ( 27 ) $2,359,000,000 , 28,136
69 , $74,714 , Baylor , ( 65 ) $1,059,000,000 , 14,174
70 , $74,407 , WILLIAM & MARY , ( 97 ) $580,000,000 , 7,795
71 , $71,711 , GEORGIA TECH , ( 51 ) $1,344,000,000 , 18,742
72 , $71,492 , St. Louis Univ , ( 74 ) $880,000,000 , 12,309
73 , $71,429 , Georgetown , ( 64 ) $1,059,000,000 , 14,826
74 , $68,100 , U DELAWARE , ( 52 ) $1,340,000,000 , 19,677
75 , $59,235 , NYU , ( 26 ) $2,475,000,000 , 41,783
76 , $57,647 , Clarkson , ( 133 ) $170,000,000 , 2,949
77 , $56,243 , U WASHINGTON , ( 29 ) $2,262,000,000 , 40,218
78 , $54,065 , U MINNESOTA , ( 23 ) $2,751,000,000 , 50,883
79 , $53,149 , U NEBRASKA , ( 58 ) $1,221,000,000 , 22,973
80 , $51,614 , Syracuse , ( 69 ) $985,000,000 , 19,084
81 , $50,084 , George Washington , ( 55 ) $1,256,000,000 , 25,078
82 , $49,185 , Howard , ( 108 ) $498,000,000 , 10,125
83 , $47,641 , U Miami , ( 82 ) $736,000,000 , 15,449
84 , $44,397 , PURDUE , ( 35 ) $1,736,000,000 , 39,102
85 , $42,634 , U KANSAS , ( 59 ) $1,218,000,000 , 28,569
86 , $41,269 , U WISCONSIN , ( 36 ) $1,735,000,000 , 42,041
87 , $39,651 , INDIANA U , ( 42 ) $1,546,000,000 , 38,990
88 , $39,492 , OHIO STATE , ( 30 ) $2,076,000,000 , 52,568
89 , $39,070 , U ALABAMA , ( 68 ) $998,000,000 , 25,544
90 , $38,906 , Colorado Sch Mines , ( 134 ) $165,000,000 , 4,241
91 , $38,611 , U OKLAHOMA , ( 60 ) $1,155,000,000 , 29,914
92 , $37,614 , U of Dayton , ( 117 ) $391,000,000 , 10,395
93 , $37,299 , Northeastern , ( 91 ) $658,000,000 , 17,641
94 , $35,994 , U MISSOURI , ( 67 ) $1,025,000,000 , 28,477
95 , $35,722 , Boston University , ( 61 ) $1,145,000,000 , 32,053
96 , $35,721 , PENN STATE , ( 43 ) $1,545,000,000 , 43,252
97 , $35,714 , U of San Diego , ( 128 ) $268,000,000 , 7,504
98 , $35,156 , U KENTUCKY , ( 71 ) $909,000,000 , 25,856
99 , $34,494 , U ILLINOIS , ( 45 ) $1,460,000,000 , 42,326
100 , $34,410 , American U , ( 116 ) $394,000,000 , 11,450</p>

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<p>Rank , Endowment Per Capita , School , ( Rank in Total Assets ) Total Assets , Total Enrollment</p>

<p>1 , $2,227,979 , Princeton , ( 4 ) $16,340,000,000 , 7,334</p>

<p>Well Princeton has lost $5 billion from their endowment and the school, has $6.1 billion in capital calls</p>

<p>So the numbers would look a lot different
total endowment $5.24 billion
7,334 students </p>

<p>$714,481 per student</p>

<p>and of course of the $5.24 billion left, a huge chunk will never get to students currently going to the school.</p>

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<p>3 , $1,898,323 , Harvard , ( 1 ) $36,556,000,000 , 19,257</p>

<p>might as well play with harvard</p>

<p>endowment is rumored to be around $25 billion less $11 billion in capital calls…round off to $14 billion divided by 19,257 students</p>

<p>$727,008 per student</p>

<p>of course there is no mention of the increase in debt, nor fixed assets…</p>

<p>This link says Harvard has $6 billion in debt…</p>

<p><a href=“http://www.thecrimson.com/printerfriendly.aspx?ref=527379[/url]”>http://www.thecrimson.com/printerfriendly.aspx?ref=527379&lt;/a&gt;&lt;/p&gt;

<p>endowment minus debt leaves 8 billion</p>

<p>divided by 19, 257 students</p>

<p>equals …$415,433 per endowment per student less debt per student</p>

<p>numbers are all estimates</p>

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<p>[Financial</a> Update: Harvard Retains Triple-A Rating, Princeton Foresees Deeper Cuts | Harvard Magazine](<a href=“http://harvardmagazine.com/breaking-news/financial-update-harvard-retains-triple-rating-princeton-foresees-deeper-cuts]Financial”>http://harvardmagazine.com/breaking-news/financial-update-harvard-retains-triple-rating-princeton-foresees-deeper-cuts)</p>

<p><a href=“http://harvardmagazine.com/breaking-news/citing-recession-yale-makes-deeper-cuts[/url]”>http://harvardmagazine.com/breaking-news/citing-recession-yale-makes-deeper-cuts&lt;/a&gt;&lt;/p&gt;

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<p>dstark, capital calls are typically for new investments in the funds in which they’ve already invested. These investments will achieve some kind of return (positive, negative, zero). If I understand your calculations, you are valuing them at zero. A lot of these funds did badly last year, but unless we were confident that these new investments is there a reason to believe that they will get zero or negative returns, wouldn’t it make sense to continue to value these at the amount of the cash investment?</p>

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<p>I am not valuing the funds at zero in real life. However, these funds are committed to investments, not to students, so I see no reason to include these funds in endowment per student.</p>

<p>A lot of Harvard’s endowment is illiquid, right now. It makes no sense to act like that part of the endowment is going to be spent on students either, but I didn’t take those numbers out.</p>

<p>These numbers are just numbers.</p>

<p>And it’s all a guess, anyway. :)</p>

<p>You can come up with your own numbers.</p>

<p>In the second link, I posted #12, it mentions that ratings agencies like to see endowment divided by debt at 4 times or higher for the highest ranking.
That’s amazing to me because if the endowment is illiquid, there is a good chance that part of the endowment isn’t going to be able to be used to pay off debt. The rating agencies…but I digress.</p>

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<p>

</p>

<p>Read the article more closely, my read says this is not at all the case. The decisions here are beyond belief and their woes much deeper than the overall meltdown would have caused a well managed business.</p>

<p>And their decisions continue to be puzzling.</p>

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<p>hmom5, I agree. :)</p>

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<p>Oh dear, does this mean DD will no longer find smoked salmon at Sunday Brunch in her House? (While the 'rents munch on Cheerios…)</p>

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<p>Another interesting article in the same edition on what happened at AIG. How could such amateurs have been running these operations?</p>

<p>

</p>

<p>Depriving the undergrads of a hot breakfast is one of their puzzling decisions albeit a minor one. I would not make light of what undergrads will be facing for several years…For my $50K (at Dartmouth and Amherst which lost less) we’re still getting hot food as expected.</p>

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<p>I think the “all institutions are in the same boat” view is a head-in-the-sand attitude. Truth be told, not all institutions are in the same boat. Some endowments have suffered far more severe losses than others. Some are in a far more illiquid position. Some institutions allowed themselves to become bloated and content on payouts from seemingly ever-growing endowment payouts, and now find the bottom suddenly dropping out, putting them in a position to be forced to make far more drastic reductions in operating expenses. </p>

<p>I find it particularly ironic that this head-in-the-sand attitude should be coming chiefly from hawkette who has argued vociferously on CC that it’s public institutions that are in the most trouble—based on cuts in state legislative appropriations ranging from 3% to 10%, at institutions where legislative support typically represents 7% to 30% of institutional revenues. But even a 10% cut in 30% of the revenue base comes out to a 3% cut in spending capacity. Contrast this with the prospect of endowment payouts shrinking by 20% to 40% over the next three years at private institutions where endowment payouts often represent 30% to 50% of institutional spending—so, at the extreme, cuts in the 15% to 20% range in total spending. Given those numbers, it seems pretty clear where the most drastic cuts will need to be made. </p>

<p>The only bright spot in this picture is that at most major research universities, research revenues are actually trending upward as a result of the federal stimulus and a targeted federal research effort in medical and energy technologies. The handful of top research universities well positioned to capitalize on that research funding look to be in pretty good shape—and the more dependent on research funds, the better shape they’re in. Otherwise, the financial outlook for higher education is pretty bleak.</p>

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<p>“The only bright spot in this picture is that at most major research universities, research revenues are actually trending upward as a result of the federal stimulus and a targeted federal research effort in medical and energy technologies. The handful of top research universities well positioned to capitalize on that research funding look to be in pretty good shape—and the more dependent on research funds, the better shape they’re in. Otherwise, the financial outlook for higher education is pretty bleak.” </p>

<p>I have heard this too, but there is a problem. The stimulus money is only 2 or 3 year money. Then what?</p>

<p>I guess it’s this…
“Otherwise, the financial outlook for higher education is pretty bleak.”</p>