<p>It’s interesting that Dartmouth doesn’t raise much in annual donations than Amherst, Wesleyan or Williams.</p>
<p>“much more”</p>
<p>The Wall Street Journal has been doing a good job of following the Galleon Hedge Fund insider trading case. Friday they had a good article profiling one of the key players spreading information. Get this-his background before working and investing funds for one of the major hedge funds- the guy was a bouncer.</p>
<p>[For</a> Tishman Speyer, Keeping Landmarks May Be Harder - NYTimes.com](<a href=“http://www.nytimes.com/2010/01/17/business/17tish.html]For”>http://www.nytimes.com/2010/01/17/business/17tish.html)</p>
<p>Good aricle in today’s NYTimes on the state of commercial real estate. My favorite quote is from CB Ellis chief economist Ray Torto,“Anybody who bought property in the last 6 years has their equity pretty well washed out”.</p>
<p>[Treasury</a> Auctions Set for This Week - Schedule - NYTimes.com](<a href=“http://www.nytimes.com/2010/01/18/business/18bond.html]Treasury”>http://www.nytimes.com/2010/01/18/business/18bond.html)</p>
<p>Princeton is issuing $250M in bonds</p>
<p>[Blumenthal</a> May Probe Ex-Wesleyan Endowment Manager (Update1) - BusinessWeek](<a href=“Businessweek - Bloomberg”>Businessweek - Bloomberg)</p>
<p>Idad, I know you follow the LAC’s-I wonder if you had seen what’s going on at Wesleyan. One of the big issues with the big endowments is just how autonomous they are. They “earned” this because of their out-size returns but when you give people such autonomy over so much money something like this is bound to happen.</p>
<p>I don’t think this piece suggest Wesleyan did anything wrong per say, does it? Yes, I agree that if there are no checks and balances greed can easily infiltrate otherwise rational behavior (can you say banker?). But this is a civil lawsuit and I saw nothing in that article that Wesleyan is on the hook as much as there might be a criminal investigation into the behavior of the endowment manager.</p>
<p>I agree with you Modadunn. I applaud Wesleyan for going after this guy. It’s interesting that this guy demanded that he be set up apart from the University in this place he called the Taj.</p>
<p>what’s also interesting, is that the accused was fingered through Wesleyan’s internal Whistle Blowers Policy (as reported by its President in this statement): [Roth</a> on Wesleyan Blog Archive Investment Office Update](<a href=“Investment Office Update – Roth on Wesleyan”>Investment Office Update – Roth on Wesleyan)</p>
<p>Financially, the biggest fear is that Wesleyan, like many other colleges mentioned in this thread, is on the hook for tens of millions of dollars in cash-calls by companies that were personally solicited by the very same investment officer they just canned. The difficulty of adequately pricing these investments, since they are not publicly traded, means an entirely new set of eyes has to evaluate them and decide whether or not they are worth holding or cutting loose.</p>
<p>Fortunately, I doubt Wesleyan will have to incur any new debt in order to preserve liquidity during this difficult period; only about 18% of its budget is dependent upon endowment performance – and, that’s been true for about the past thirty years.</p>
<p>Dartmouth may tinker with financial aid to help the budget:</p>
<p>“In an interview with The Dartmouth today, College President Kim said that the administration had been asked by the Board of Trustees to review the College’s financial aid policy as part of its comprehensive budget analysis. Administrators have made no firm decisions yet about potential changes, but Kim said that students whose families make less than $75,000 will not, in fact, see a change in their financial aid. The College may, however, reinstate loans for students of higher-income families, he said.”</p>
<p>The no-loan policy to attract middle-class kids may go away. </p>
<p>[TheDartmouth.com</a> | Administrators eye “no-loan” financial aid](<a href=“The Dartmouth | America's Oldest College Newspaper”>The Dartmouth | America's Oldest College Newspaper)</p>
<p>[Hedge</a> Funds Hold Investors ?Hostage? After Decade?s Best Year - BusinessWeek](<a href=“Businessweek - Bloomberg”>Businessweek - Bloomberg)</p>
<p>Article may explain why schools are issuing debt rather than getting more cash from selling their hedge fund investments</p>
<p>[Yale</a> Daily News - Yale?s debt is stable](<a href=“http://www.yaledailynews.com/news/university-news/2010/01/22/yales-debt-stable/]Yale”>http://www.yaledailynews.com/news/university-news/2010/01/22/yales-debt-stable/)</p>
<p>After issuing $1B in debt in November Yale is back again with another $900M. Not a surprising development considering the shape of their endowment. Yale is different than others in that it is taking a risk on issuing shorter term debt. The upside is that you pay less in interest, the downside is that you have to re-finance more often and more importantly you are risking that interest rates will be higher when you do re-finance. Most other schools are taking advantage of historically low interest rates to lock in long-term financing.</p>
<p>they also seem not to be issuing the debt to shore up day-to-day operations, like Amherst, Harvard and Stanford are doing; but, are using it for capital projects.</p>
<p>I think all the elites have much more in common than they do in differences. Also, the schools facing cash calls of 2008-09 could well have been big winners in 2009-10. Almost had to be.
The only school I’ve identified that went conservative “at the right time” was Penn. Very possible that Penn will lag the field in 2009-2010, but we’ll see.
As things shake out, most will agree that schools placed their cash at ridiculous risk for a few basis points and lost billions as a result. The untold story, although Harvard leaked some of this. The result was the inability to pay bills and large scale borrowing. A deserved scandal there.</p>
<p>The full NACUBO data is due to be released soon and this will provide a full disclosure for all of these schools and their relative standing. The data will be from 6/30/09 and comparisons with 6/30/08 (and 6/30/99 if they also make that available) will be very interesting reading. In particular, I’m curious to see how those schools with lower octane endowment managers compared. The mismatch of investment approach and institutional need by many of the elites has been well highlighted on this thread, but I’d like to see a broader comparison of the longer-run returns produced by different investment styles as practiced by these schools.</p>
<p>[John</a> C. Bogle: Restoring Faith in Financial Markets - WSJ.com](<a href="http://online.wsj.com/article/SB10001424052748703436504574640523013840290.html?mod=rss_Today’s_Most_Popular]John">http://online.wsj.com/article/SB10001424052748703436504574640523013840290.html?mod=rss_Today’s_Most_Popular)</p>
<p>John Bogle tells it like it is. Harvard just hired a new “Risk Manager” from the “hedge fund industry”–an oxymoron if I’ve ever heard one. What they should do is bring John Bogle and Warren Buffett in–they could fix their mess in 30 minutes.</p>
<p>I think the lesson here is that college endowment managers should be located on site, next to the President and VP Finance, surrounded by students and professors, and constantly reminded that they are tasked with preservation of endowment, not with running a hedge fund or proving that they have a bigger (…) than the next endowment mananger.</p>
<p>There are alumni none to pleased with Williams for setting up “mini-Yale” investment office in Boston, separate from the campus. Veterans know darn well that, when you are investing a billion dollars, the money manager will come visit you.</p>
<p>My favorite quote in the Bogle article other than Volckers comment about the ATM being the only thing worth a dime that came out of financial engineering is Robert Bartley the editor of WSJ," true profits are represented by cash-a fact-rather than reported profits-an opinion."</p>
<p>As endowments report improved endowment results its hard to match that with the fact that a school like Yale is issuing $900M in debt a little over 2 months after they issued $1B in debt. </p>
<p>If Madoff was operating a hedge fund or private equity firm he’d probably be out on his yacht in the Caribbean right now.</p>
<p>At long last, Amherst released their year-end financial reports on Friday. There is some ugly, ugly stuff in there.</p>
<p>First, we know they borrowed $100 million in taxable bond debt last Februrary to meet liquidity needs. What we didn’t know is that they are paying a 5.875% interest rate on that cash.</p>
<p>That wasn’t the end of the liquidity problems. They started the fiscal year with $503 million in outstanding cash calls. During the year, they dumped $51 million of those by selling partial stakes in four investments in the secondary market and taking advantage of buy-back offers from other fund managers. They don’t specify, but it’s a safe bet they got scalped on these transactions. </p>
<p>They also liquidated $113 million from their public equities, reducing the percentage in the portfolio to just 16% (compared to a target of 30%). These were also, of course, sold at distressed prices.</p>
<p>And, finally, they liquidated $51 million of hedge fund investments.</p>
<p>Why so desperate for cash? Well, on a new endowment of $1.3 billion, they have $427 million in cash call commitments over the next four years. That’s over $100 million a year.</p>
<p>No sweat, right? Just sell some more stocks. Nope. Look at their asset allocation. The first number is their target; the second number is the actual percentage on June 30, 2009.</p>
<p>Public Equity 30% 16%
**Hedge Strategies **30% 27%
Private Equity/Venture 16% 22%
**Real Assets **12% 17%
**Fixed Income + Cash **12% 18%
**Total Pool **100% 100%</p>
<p>Not only did they miss most of the rebound in Public Equity, but if they sold every penny of stocks and bonds, they could barely cover the cash calls. And, I’m not sure they can even liquidate their stocks. $140 million of their $230 million in public equites are foreign/global stocks listed as Level III assets meaning that they can’t be directly priced. $1.1 billion of their $1.3 billion endowment is in Level III assets with potentially “squishy” valuation. They are horribly over-exposed to private equity, whith may or may not be worth what the funds say it is.</p>
<p>Oh, and they ended the year with $321,016,000 in bond debt.</p>
<p>OK…so Interesteddad…should we use endowment per student to measure Amherst’s financial strength. Should we use Amherst’s endowment per student to measure how much education Amherst is paying for?</p>