Continue reading Tell-tale stat: Yale University to lay-off up to 300 staff

Tell-tale stat: Yale University to lay-off up to 300 staff originally appeared on BloggingStocks on Tue, 03 Mar 2009 12:00:00 EST. Please see our terms for use of feeds.

During times of economic distress, it's common for people to go back to school. But when it comes to MBA programs, things may be still be gloomy.

Bear in mind that these programs rely heavily on endowments. And when the investment market was bubbly, the returns were lush -- and so were the MBA programs.

Continue reading Slow times at MBA schools

Slow times at MBA schools originally appeared on BloggingStocks on Tue, 03 Feb 2009 14:30:00 EST. Please see our terms for use of feeds.

Harvard reports that the value of its endowment has declined $8 billion between the end of June 2008 through October 2008. That would make Harvard's endowment worth 22% less than at the end of June, or $26.9 billion -- but it probably has further to fall thanks to illiquid assets like private equity interests. Meanwhile, Harvard and its peers could be in trouble because fewer people will be able to afford college given the market crash. That will mean college administrators are facing some tough choices.

Harvard is responding to the decline in its endowment by taking a "hard look" at staffing levels and compensation. It is forecasting a 30% drop for its endowment ending in June 2009, which would bring it to $25.8 billion, down another $1 billion. While this strikes me as optimistic, it does suggest the extent of the damage and the challenges Harvard and its peers face.

The options for universities are dwindling. A study suggests that tuition has risen 439% since 1982 while median family incomes have increased only 137% during that period. If tuition continues to rise at that rate, few families will be able to afford college. With the student loan market in dire straits and incomes likely to fall further due to layoffs, the only way for colleges to attract top students who can't pay will be to cut tuition even more on the lower income families while making up the difference by raising tuition for the wealthiest ones.

Continue reading Harvard endowment loses $8 billion - how will colleges survive?

Harvard endowment loses $8 billion - how will colleges survive? originally appeared on BloggingStocks on Wed, 03 Dec 2008 12:00:00 EST. Please see our terms for use of feeds.

Harvard is an easy target for the woes of our economy. Its business school produced George W. Bush, the fellow who's presided over the current economic catastrophe, and Rick Wagoner, the CEO of the largest automobile maker who's led its stock down 95% in the last eight years and now wants $25 billion worth of taxpayer money to keep the millions rolling into his bank account. But Harvard had these folks for just two years, so it's tough to blame the school for the current predicament.

However, with $36.9 billion in assets (as of June 30), Harvard also has the largest endowment of any university. And thanks to its big exposure to very illiquid interests in venture capital (VC) and private equity (PE) firms, Harvard leads a growing list of limited partners (LPs) which are selling stocks and those very illiquid interests in order to come up with the cash needed to fulfill their capital calls to these partnerships.

This requires some explaining. VC firms raise money from limited partners such as wealthy individuals, foundations, pension funds, and endowments. But the LPs don't write checks up front -- instead they hold onto their cash and must write a check when the VC calls and asks for the money when the VC is on the verge of making an investment. The problem for many LPs like Harvard is that much of their stock portfolio is locked up in hedge funds and these illiquid VC and PE interests.

Continue reading Is Harvard's endowment crushing stocks?

Is Harvard's endowment crushing stocks? originally appeared on BloggingStocks on Wed, 19 Nov 2008 13:10:00 EST. Please see our terms for use of feeds.

Your 401(k) and ROTH IRA might be down, and shares of student lender Sallie Mae (NYSE: SLM) have gone from $50 to $15 since October, over concerns about the student loan market.

But you'll be happy to know that the endowment for Harvard is chugging right along, up in the 7-9% range for its fiscal year ended in June, according to The Wall Street Journal (subscription required).

In the current market malaise, that's enough to make it the best-performing major endowment, according to experts. That's especially impressive given the fund's massive size: $35 billion.

The Journal reports that "The endowment's staff pursued a strategy of shielding the fund from market downturns by purchasing credit-default swaps that helped protect it from wild market swings. Harvard also had a larger position than many endowments in plain-vanilla Treasury debt, which outperformed the stock market."

I have just one question: With a $35 billion endowment growing at 7% per year, why do they need to charge $45 thousand per yeah? To its credit, the school announced late last year that it would extend much more generous financial aid to middle-class families.

Harvard endowment zigs while market zags originally appeared on BloggingStocks on Sat, 09 Aug 2008 13:10:00 EST. Please see our terms for use of feeds.

Continue reading Smart money? University endowments see opportunity in sub-prime

Smart money? University endowments see opportunity in sub-prime originally appeared on BloggingStocks on Fri, 22 Jun 2007 17:15:00 EST. Please see our terms for use of feeds.

Harvard, Stanford, Notre Dame, and MIT have all received permission from the IRS to allow donors to invest in their endowments (WSJ, registration required). By structuring investments as charitable trusts, donors receive a regular distribution until death, and then the money goes to the school.

The returns earned by endowments at schools such as Harvard and Yale are impressive. The Harvard endowment has returned 15.2% per year for the past 10 years, crushing the S&P 500's return of 8.3%. In addition to their strong performance, endowments are diversified across so many different asset classes that they often bear a very low correlation to the stock market. While investing in endowments is often inefficient in terms of taxes, the historically higher returns some have earned has more than made up for it.

If tax rules loosen up and allow endowment investors to keep a greater share of their gains, we could see endowments become a popular vehicle for retirement planning. Instead of watching the Final Four basketball games, investors could keep a close eye on which school is earning the highest returns.

I wonder how much correlation there would be between the prestige of a school and the performance of its endowment. As Warren Buffett has said, "Success in investing doesn't correlate with IQ once you're above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing."

Retirement planning that sends you to Harvard originally appeared on BloggingStocks on Sun, 25 Mar 2007 14:40:00 EST. Please see our terms for use of feeds.