Harvard lost $1.8 billion after ignoring warnings about investments

Colleges and Universities A-Z Harvard University
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<p>"It happened at least once a year, every year. In a roomful of a dozen Harvard University financial officials, Jack Meyer, the hugely successful head of Harvard’s endowment, and Lawrence Summers, then the school’s president, would face off in a heated debate. The topic: cash and how the university was managing - or mismanaging - its basic operating funds.</p>

<p>Through the first half of this decade, Meyer repeatedly warned Summers and other Harvard officials that the school was being too aggressive with billions of dollars in cash, according to people present for the discussions, investing almost all of it with the endowment’s risky mix of stocks, bonds, hedge funds, and private equity. Meyer’s successor, Mohamed El-Erian, would later sound the same warnings to Summers, and to Harvard financial staff and board members....</p>

<p>But the warnings fell on deaf ears, under Summers’s regime and beyond. And when the market crashed in the fall of 2008, Harvard would pay dearly, as $1.8 billion in cash simply vanished. Indeed, it is still paying, in the form of tighter budgets, deferred expansion plans, and big interest payments on bonds issued to cover the losses."
Harvard</a> ignored warnings about investments - The Boston Globe</p>

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<p>This is hard to believe. Larry Summers is the director of the economic council for Obama. He obviously knew about how badly the economy was doing under Bush. He continually berated the Bush economic policies (after the crash) so why would he be so cavalier about Harvard’s investments during that time period??</p>

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<p>Perhaps they should have analyzed their financial holdings with the same intensity that they screen their prospective college applicants.</p>

<p>Seems like folly, to me. </p>

<p>A little bit like the parable about the man on the roof during the flood, don’t you think?</p>

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<p>“In the years after Summers left, market conditions and Harvard’s liquidity changed dramatically. The university’s financial strategies could have and should have changed with them.’’</p>

<p>Summers left in 2006 when the FED was still tightening. The interest rate swaps which ended up costing more than a billion made sense at the time and were still profitable well after the FED changed tact and started lowering rates in 2007. </p>

<p>Problem was Summers was gone and so was El-Erian and no one still there was willing or able to reverse the trade.</p>