<p>Idad…#418…good post.</p>
<p>I guess the financial guys aren’t going to fire themselves, and the guys running the schools, the guys that could fire the financial guys, don’t understand that the financial guys are gamblers…not geniuses. Everything sounds so complicated but when you break things down…Harvard bet that interest rates would go up… and used leverage…and interest rates went down…So… the gamble lost … big time.</p>
<p>Where it’s troublesome to me is that it is such an incestuous closed loop. I mean, who has been educating these riverboat gamblers that have run the economy into ground? I believe a disproportionate number are Harvard, Yale, and Stanford grads.</p>
<p>Something has fundamentally broken down in the education of our leaders. These colleges need to not only worry about their endowment losses, but do some soul-searching about the values, perspectives, and priorities they have been teaching their students. Summers was a Harvard PhD economist. Apparently his training must not have been worth a damn.</p>
<p>:)</p>
<p>It does make me wonder what kind of education the students are getting at these schools…at least the students studying economics and finance.</p>
<p>Not only was he a Ph.D. but he had 4 economists as uncles and aunts, two of them Nobel prizes. What more can one want? common sense? Different personality traits? :)</p>
<p>LOL…</p>
<p>I think business owners can be more knowledgable about the economy than economists. Business owners have first hand knowledge of how their business is doing. If they come into contact with customers and more business owners…business owners receive even more information. Difference between reading and living. Economists see the information late. And economists want to use information to fit their theories.</p>
<p>And …even if the business owners aren’t understanding the economy themselves…they can give a person great information. For example, when a mortgage broker says we are giving out loans to anybody with a pulse, you don’t need an economist’s theory to understand that things are going to go bad.</p>
<p>Anyway, those are my theories. :)</p>
<p>And I’m not too impressed with Summers.</p>
<p>I think “personality traits” probably comes closest to the problem. It appears that these top schools have been churning out leaders with no judgement, no common sense, and a distinct shortage of ethical responsibility.</p>
<p>There was absolutely no reason on earth for Summers and Harvard Corporation to risk that endowment to gain an extra half point of return. The motivation was one of having to prove they had bigger – ahem – “endowments” than the guys at Yale. The whole thing was an excerise in guys measuring each other’s “endowments”. Apparently, none of them gained much beyond middle-school maturity despite their years of education at Harvard and Yale.</p>
<p>That should concern the leaders of these schools greatly. It seems to me that those given the opportunity of the best education in the world should experience some concern for the common good as a fundamental part of that education. That’s what educating leaders is all about.</p>
<p>dstark, my guess is the profs teach the effecient market thesis and are probably not too happy that the geniuses at HMC think they are somehow smarter than everyone else.</p>
<p>Interest, I don’t agree with you about tier 3 assets. I do think it may be a different story for LAC’s as opposed to the big endowment schools I’ve been following. In the case of Stanford they do list “assets held by other trustees” but the amount is less than 1% of the endowment. Almost $10B is in a category called limited partnership.</p>
<p>Also, looking at the cash flows in the different categories, given Stanford’s need for cash if it was being held in a stock/bond fund then you would think Stanford would cash that in before issuing debt. But if you look at the limited partnership category they actually spent a net $700M in that category which suggests to me that they were making capital call committments and they had little success selling much of anything they had in this category. This has been a pretty consistent story amongst all the major endowments. Net-net I think whatever investments the worst off U’s had in liquid investments were sold off long ago. </p>
<p>From what I have seen the amount of investment in Tier 3 is consistent with the need to issue debt which is consistent with a troubled endowment, atleast with the major endowments.</p>
<p><a href=“http://bondholder-information.stanford.edu/home.html[/url]”>http://bondholder-information.stanford.edu/home.html</a></p>
<p>idad:</p>
<p>Alas, you’re right. Can common sense be taught? Can personality traits be tamed? (they seem to be exploited).</p>
<p>I wasn’t impressed with Summers, but for different reasons, originally.</p>
<p>
</p>
<p>Well, that, too! Let’s see. Poor interpersonal skills. Abrasive. Offensive to women. Infuriated almost every member of the faculty. And, made bad economic decisions. Kind of hard to figure out how he got to be Treasury Secretary and President of Harvard, isn’t it? </p>
<p>I’m not sure the good ol’ boys network is hitting on all cylinders these days.</p>
<p>sm74:</p>
<p>I probably should have worded that differently. The Tier 3 category may or may not provide useful information. I don’t want to say that Tier 3 is trouble because, as I pointed out, there is stuff that has to be reported as Tier 3 that is actually quite easily priced and perfectly liquid. A college that invested in plain old mutual funds would have to report the investment as Tier 3 because it relies on a third party for pricing and valuation.</p>
<p>That, of course, is not the case at Stanford for Harvard.</p>
<br>
<br>
<p>Well, the freshmen who lived in Mass Hall liked Larry Summers, my daughter among them. But that was based more on the pizza party he threw for them every year rather than his financial policies.</p>
<p>Actually, I think Summers was popular with most Harvard students and not just Mass Hall kids. There were protests in support of him when he was pushed out as president.</p>
<p>Idad, I would agree with you that just because it is in tier 3 does not necessarily make it very risky. Hedge funds are in this category and some hegde funds are very safe especially those that do long/short strategies. But some hedge funds are very risky and use alot of leverage. It is not possible to tell looking at the financial report how risky their hedge fund investments are, and I think one reason for some improved liquidity is that hedge funds are allowing more redemptions. Other tier 3 assets like Real estate I think is very risky and for most endowments virtually worthless. Private Equity really is a mystery category in tier 3 but I am pretty skeptical about valuations there.</p>
<p>You mention mutual funds though being in tier 3 but I dont think that is the case. If it is a mutual fund that you purchase like Fidelity or Vanguard that has daily pricing then that would be tier 1. Stanford lists their stock holdings and mutual funds in one category in tier 1.</p>
<p>FYI, good article in today’s WSJ about money and debt being used to build state of the art college athletic facilities and professors that are none too happy about it.</p>
<p>[Budget</a> cuts likely on the horizon for Rice | Houston & Texas News | Chron.com - Houston Chronicle](<a href=“http://www.chron.com/disp/story.mpl/metropolitan/6779879.html]Budget”>Closed dorms for season signals hard decisions for Rice)</p>
<p>Rice facing some cuts due to the endowment</p>
<p>Since there is some discussion here on common sense and personality traits, I’d like to post this link to an article by Paul Krugman in NYTimes magazine (Sept 2, 2009) on “Why did Economists get it so wrong”:</p>
<p><a href=“http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?_r=1&scp=1&sq=paul%20krugman%20%20how%20did%20economists%20get%20it%20so%20wrong&st=cse[/url]”>http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?_r=1&scp=1&sq=paul%20krugman%20%20how%20did%20economists%20get%20it%20so%20wrong&st=cse</a></p>
<p>Summers is one of those…</p>
<p>Open end mutual funds with a daily Net Asset Value (NAV) are Level 1 - they have an observable price.</p>
<p>[Harvard</a> financial losses extend beyond the endowment | Harvard Magazine Jan-Feb 2010](<a href=“http://harvardmagazine.com/2010/01/harvard-2009-financial-losses-grow]Harvard”>http://harvardmagazine.com/2010/01/harvard-2009-financial-losses-grow)</p>
<p>Good analysis of Harvard’s 2008-09 financial statement</p>
<p>^ So do I read this correctly to say that Harvard was investing its cash operating funds in the same risky investments where it was placing bets with its endowment? That sounds just shockingly stupid.</p>
<p>bc, this was discussed earlier on page 18. The overall wealth destruction at Harvard has been pretty remarkable. Total investments lost 33% from about $45B down to $30B at the same time debt has surged to $6B. And operating costs are still rising-about $300M more in 08-09. Pretty incredible.</p>
<p>[The</a> Private Equity Top 10: Number Seven - Private Equity Beat - WSJ](<a href=“http://blogs.wsj.com/privateequity/2009/12/26/the-private-equity-top-10-number-seven/]The”>http://blogs.wsj.com/privateequity/2009/12/26/the-private-equity-top-10-number-seven/)</p>
<p>This doesn’t suggest that things are getting any better as far as real valuations in private equity</p>
<p>[Cambridge</a> University follows Ivy League trend with £400m bond issue - Times Online](<a href=“The Times & The Sunday Times: breaking news & today's latest headlines”>The Times & The Sunday Times: breaking news & today's latest headlines)</p>
<p>After 800 years seems as if Cambridge has caught the debt habit of its American counterparts.</p>