Posted on 02/26/2009 3:48:03 AM PST by TigerLikesRooster
How Harvard's Investing Superstars Crashed
Bernard Condon and Nathan Vardi 02.20.09, 11:20 PM ET
Stocks were tumbling last fall as the new school year began, but at Harvard University, it was as if the boom had never ended.
Workers were digging across the river from Harvard's Cambridge, Mass., home, the start of a grand expansion that was to eventually almost double the size of the university. Budgets were plump, and students from middle class families were getting big tuition breaks under an ambitious new financial aid program.
The lavish spending was made possible by the earnings from Harvard's $36.9 billion endowment, the world's largest. That pot was supposed to be good for $1.4 billion in annual earnings.
Behind the scenes, though, a different story was unfolding.
In a glassed-walled conference room overlooking downtown Boston, traders at Harvard Management Co., the subsidiary that invests the school's money, were fielding questions from their new boss, Jane Mendillo, about exotic financial instruments that were suddenly backfiring.
Harvard had derivatives that gave it exposure to $7.2 billion in commodities and foreign stocks. With prices of both crashing, the university was getting margin calls--demands from counterparties (among them, JPMorgan Chase and Goldman Sachs) for more collateral. Another bunch of derivatives burdened Harvard with a multibillion-dollar bet on interest rates that went against it.
(Excerpt) Read more at forbes.com ...
Ping!
It is simply too complex. How do you teach people not to fear liberty?
I hear these stupid regulation arguments on this site all the time. Do people realize that when you demand regulation you're not really saying I don't trust the other guy, you are really saying I cannot trust myself to make good decisions?
A woman posting on this site claimed to have lost money in derivatives. She’s a housewife and her husband is an engineer at GM.
What was her family and Harvard doing trading derivatives?
They are not a conservative investment. (Could it be the Fed set interest rates so low people were chasing risk up?)
BTTT
——LOL———
This is known as clawback, this idea is spreading and God willing some will be clawed back from the thieves of Wall Street
Undocumented Student at Harvard on $50,000 Scholarship
http://news.newamericamedia.org/news/view_article.html?article_id=93908896a13de0a3aafac5c1a3732130
Seems like most top bankers and CEOs, in general, have been getting golden parachutes and not the boot they deserved!
Run it into the ditch, escape, and let middle management sort out the pieces.
3.8%
That does not sound like a very large return from the brightest money managers on the planet.
“3.8%
That does not sound like a very large return from the brightest money managers on the planet.”
My impression is that $1.4 billion did not represent all the annual earnings: it merely represented the share of endowment that the University was willing to allocate towards annual operating expenses, i.e., roughly one third of the total. 3.8% obviously is a very conservative figure especially in light of their actual annual earnings, which generally had been at double-digit levels for a considerable period of time.
IRS requires tax exempt 501(c)3 foundations to spend at least 5% of endowment on grounds that a) unless ineptly managed, a typical endowment should be earning well in excess of 5%, hence the 5% requirement still theoretically would allow the foundation to operate in perpetuity; and b) a foundation that simply husbands its earnings and never gives them away isn’t conferring any benefit on society, so why make it tax exempt? I don’t know what rules govern university endowments, but places such as Harvard and Princeton have endowments so large that they literally have enough funds to let every one of their students attend for free in perpetuity, if they were so inclined.
It was true!!
People have been saying that “The Harvard Endowment” is a hedge fund running fronted by Harvard University which makes the whole scheme tax-exempt. Thus more leeway to pay lavish salaries to the Harvard hedge fund operators
I guess I was mislead by the word earnings in the sentence but that may not really be earnings from the 36.9 billion.
FWIW, I just ran across this:
“If Harvard had its endowment pay out only this minimum 5%, it would provide $90,000 annually for each one of its total of 20,000 students in all is school”
It explains more clearly the tax exemption issue raised by universities such as Harvard.
http://www.scrivener.net/2008/05/tax-harvard-now-not-just-its-endowment.html
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