Harvard endowment: The smart get stupid
Filed under: Investing
The endowments of Harvard and Yale took a horrible beating in the last fiscal year, proof that brains don't necessarily top the market. Documents from Harvard for the year ending June 30 show that its fund declined to $26 billion. That includes a 27.3 percent loss on investments and $1.7 billion in distributions. Things were just as bad at Yale, where the endowment fell 30 percent to $16 billion. Large donors to the universities may be concerned with the huge drops.
The losses could be excused by the overall drop in the stock market, but shouldn't non-profit endowments have their money in the safest fixed income instruments, like Treasuries? The endowment managers would argue that the funds have done well over the last decade because of relatively risky investments, but that reasoning may not matter much now. Both universities will have to cut back essential programs.
In addition to a drop in the net value of the Harvard and Yale endowments, getting donations from rich graduates may well be more difficult. Who wants to give a university $5 million only to see much of the donation disappear?
Douglas A. McIntyre is an editor at 24/7 Wall St.
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Reader Comments (Page 1 of 2)
9-11-2009 @ 7:45AM
Ron said...
Although it's always sad to see any institution of higher learning loose funding, it's easy to smile at Harvard & Yale's situation. As a graduate of a lowly "State University", the situations of these premier intitutions was probably caused by their own graduates. After all, it was "very smart" people that caused our economic calamity, & Yale & Harvard are quite possibly at the top of the list as to who "provided" these very smart people.
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9-11-2009 @ 8:11AM
jdl said...
Donations and enrollments are way down on these LIBERAL minded, communist teaching, lilly-livered institutions such as Harvard or Yale. Nobody agree's with these liberal institutions. I'll hire a State College grad over a Harvard grad everytime. A Statey will work hard and smart, a Harvard grad thinks that the world owes them because they went to Harvard, but in all reality many of them are just lazy.
9-11-2009 @ 1:47PM
Gary said...
Well said Ron!
9-11-2009 @ 4:20PM
sheilph2 said...
I don't know about them, but Notre Dame should. They were a disgrace. Vote for Congressman Mike Rogers for President, now.
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9-11-2009 @ 8:26AM
Cathy said...
I have an idea, let's nationalize colleges, too! then all of north america can be canada!
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9-12-2009 @ 12:19PM
MIchael said...
It never ceases to amaze me when I hear comments about Canada. The sum total of the knowledge that appears to be evident in this kind of comment is roughly equivalent to the IQ of the person writing the comment... extremely low! A little more serious thought rather than just spouting garbage would probably help the world at this time. But when you are part of the largest group of reactionaries in the word, why should we be surprised at this kind of trash ?
9-11-2009 @ 8:43AM
John Mader said...
I wonder how Grinell College,Grinell, Iowa, has made out. Grinell, a very liberal college, had a huge endowment 10 years ago. It helped that one of her grads was the founder of Intel. The endowment was so big that it could have doubled professor's pay and not charged tuition to any undergrads - and sitll have increased the endowment year to year. I also wonder about the University if Notre Dame where silliness sometimes seems to prevail.
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9-11-2009 @ 9:28AM
Randy said...
Gosh... how will those ivy league institutions, who are so famous for turning out know nothing - do nothing - career liberal bureaucrats or for token affirmative action "graduates" survive?????
Maybe they can get a couple of billion $$$ granted to them like their most renown affirmative action token just gave to his puppeteer to drill for oil in Brazil.....
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9-11-2009 @ 10:53AM
Bill said...
Gee, I think we have missed something very important. Both President H. W. Bush and President George W. Bush are graduates of Yale University. The younger Bush also graduated from Harvard's Business School with an MBA. I guess these two gentlemen are really the high priests of liberal thought and do-nothingism. Then there is Donald Rumsfeld who graduated from the Ivy League bastion of Princeton and Henry Paulson who went to Dartmouth. I guess these people are not who they were. It is all so confusing.
9-11-2009 @ 1:42PM
Robert said...
Lets not forget, YALE ALSO PRODUCED THE CLINTONS. Somehow, I can not work up any sympathy for these bastions of liberalism and their current economic predicaments.
9-11-2009 @ 9:53AM
WENT TO HARVARD said...
I WENT TO HARVARD FOR A WEEKEND. DID NOT ACTUALLY ATTEND AS A STUDENT.
ANYWAY, HAVE A GREAT WEEKEND !
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9-11-2009 @ 9:57AM
:: said...
TODAY WE UNITE IN MEMEORY OF ALL THOSE WHO LOST THEIR LIVES ON 9/11/01 AND OUR HERO FIREFIGHTERS WHO LOST THEIR LIVES TRYING TO SAVE OTHERS.
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9-11-2009 @ 2:26PM
MICKEY said...
So, then, they won't be endowing Harvard or Yale?
9-11-2009 @ 10:06AM
David said...
The truth of the matter is that these endowment fund managers play just as fast and loose as hedge fund operators. If they had put the endowment fund in US treasuries ten years ago they would not have lost at all. Idiots and greed. I wouldn't donate a dime to either one of the universities. Cornell '70
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9-11-2009 @ 10:12AM
Bill said...
Mr. McIntyre is normally a responsible editor, but for some reason he lost it in this article because his article sounds like a proclamation for Chicken Little that the sky is falling. Harvard and Yale did not lose what Mr. McIntyre says they did. Yes, the value of their endowment assets went down, but unless Yale and Harvard sold all their falling assets, there was no loss. Also the reports referred to in the article are out of date, as we speak. The stock market has been on a somewhat steady climb in value since March 2009 and that is not seen fully in the reports. What has happened at Yale and Harvard has happened at virtually every institution which has an endowment. The only ones that really lost are the one's who decided to put all their money with Bernie Madoff and others of his ilk and those were the people who were stupid and/or greedy. No one, who is able to invest, is immune from losses, paper or real. A better article might have been about the investment strategies of these endowments. Yale endowment has a website in which it describes in detail its investment strategies, which are quite good and useful for professional money managers. The strategies are based upon the proven maxim of diversification.
As for the donating alumni of these two schools, nothing will change. Those alumni have gone through the very same turmoil and, as a result, they fully underestand what is going on. While some alumni will be hesitant to donate as much as they have in the past in the current year, it is only because their own portfolios were whacked. They should have no concern about the investment prowess of the endowment managers. It should be pointed out that the value losses of 27.3% and 30% for the two funds were less than for the market as a whole during the same period of time. Maybe, contrary to Mr. McIntyre, that says the brains who run the two endowments do top the market. In any event the alumni will be back at both institutions.
I have no connection whatsoever to either university or endowment fund.
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10-09-2009 @ 5:32AM
Ben said...
Good, then maybe these schools won't have money to fund people like Van Jones.
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9-11-2009 @ 10:38AM
joyce said...
Once upon a time I longed to attend Harvard or Yale. Not enough money. Not enough government help. Now I am grateful for not going....it sure looks like these two institutions churn out more cookie-cutter freaks than we can handle.
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9-11-2009 @ 10:47AM
A J Price said...
Mr. McIntyre's statement..."but shouldn't non-profit endowments have their money in the safest fixed income instruments, like Treasuries?" shows he doesn't truly understand what he's writing about.
For SHORT TERM investments...yes, Treasuries would be an appropriate investment, but endowments are NOT short term investments.
Treasuries & cash (and cash equivalents) are often considered "safe" investments...and they are...in the very short-term. Unfortunately, treasuries are definitely a "risky" asset class for LONG TERM investments due to the never ending effects of inflation and taxes..which make the historical return on these investments pretty close to zero over longer time periods. No that's RISKY BUSINESS!!
(Need proof? In 1960 a 1st class stamp cost 4 cents...today it's 44 cents. That's an increase of more than 1000%!!)
You have to understand that there's a difference between saving and investing; savers don't "lose" money (not taking taxes and inflation into effect, even though they are). Investors do periodically "lose" money, but over longer periods of time investors almost always make more money than savers...A LOT MORE.
I'd bet my entire 401k that if you went back to the inception date of Harvard's or Yale's endowment fund and ran a hypothetical illustration using historical returns to show a 100% investment in treasuries versus what they've actually done - including this past year, that the actual portfolio results would CRUSH a portfolio of treasuries.
Mr McIntyre's article is ill informed and misleading.
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9-11-2009 @ 10:58AM
ajgorm said...
The party is over the day of unlimited inflation are gone now we live on less. Spread the wealth hits us all. The profits from endless ponzi type schemes are over I would assume. Without another housing boom or manufacturing growth here money will be harder to come by. Protecting wealth and less waste on pork style spending will keep us flat for some time.It is to bad that we all got fat on good times spending endlessly on pork and we now need to lose some weight and live within our means. How many times have we heard live within our means. Productivity- making more for less is the key here, Good luck..
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9-11-2009 @ 11:09AM
Dick Brubaker said...
I agree with A.J. Price. What matters is the "overall" trend in the value of the portfolio. What is the ROI for the past 10 or 20 years; does the portfolio growth (not considering contributions over those years) exceed T-bill returns or inflation?
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