Harvard University’s admission that it lost $8 billion from its $36 billion
endowment fund, as staggering as it sounds, may grossly underestimate the true magnitude of the
loss between from July 1 through Oct. 31 2008. According to a source close the Harvard
Management Corporation (HMC), which runs the fund for Harvard, the loss is closer to $18
billion if the losses on the fund’s illiquid investment are realistically appraised.
That’s Edward Jay Epstein, via Megan McArdle. As Megan points out, no one should be surprised by this and in fact I would be surprised if that were the full extent of the damage.
Whoops.
Well, that’s an unfortunate development for higher education in the US!
At any rate, they’re still way ahead of where they were in ’90.
Don’t forget that November wasn’t a great month either (S&P500 -7.49%).
Higher ed is the next bubble to pop. After all, it got inflated by the same forces that pumped the housing bubble: overly easy credit, the idea that “more is always better” among politicians, and a perception that no matter how expensive it is, the cost is always justified by eventual gains in the market.
Seems to me, if Obama really wanted to spread the wealth, he’d get rid of the ridiculous tax exemption for colleges and universities. These organizations have all sorts of subsidies, exemptions and grants and they still keep crying poverty. Time to acknowledge the post secondary pedigree industry is a BUSINESS that needs to pay its fair share.
higher ed produces illiquid and non-fungible “assets”. that is its primary purpose.
Deal.
Then we can talk about them also losing their government funding. I mean, if you want to be all evenhanded about it…
So, in terms of teaching the students how to manage money, a Harvard MBA was not much better than any other? Seeing how generally Finance PhD students run these funds, they either must not have known to call their cronies at Goldman Sachs before the meltdown, or all of these MBA programs are flawed.
As mangers in many family offices and endowment funds seem to have forgotten, the proper mangemjent valuation of an endowment fund is the present value (in real terms)of its expected future income stream. The mark to market valuations which were the boast of people around Harvard Management Corporation were and are irrelevant to how well they are doing their job.
Were I one of Greg Mankew’s Harvard colleagues, I would be disturbed if the endowment fund managers are letting out no leaks about the effect of the crash on future income.
How about this: colleges and universities get to lose their tax-exempt status if churches,
think-tanks and “non-profit” lobbying organizations lose theirs. Deal?
Kinda sensitive, eh Ricardo?
In any case, you can’t have “separation of church and state”, if they are taxed.
As long as churches aren’t taxed *more* that doesn’t really make sense.
F*ck Megan McArdle
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Sarah
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