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I've been waiting for this article to surface on HN. The other problem here is that hedge funds, as an investment vehicle, really haven't done that well. So it

I've been waiting for this article to surface on HN. The other problem here is that hedge funds, as an investment vehicle, really haven't done that well. So it is essentially a transfer of donations to the hedge fund industry while the endowment could have done better avoiding them altogether. Obviously there are some hedge funds that have done well - but on the whole they are expensive and do not add alpha. Back in the day, Harvard didn't outsource to hedge funds but instead had the portfolio managers in-house. These folks were paid a small fraction of what they would make in the private hedge fund industry, but my understanding is that the Harvard community was up in arms at what they were making - so they quit/got pushed out and then Harvard started outsourcing to hedge funds. The result was worse performance and higher fees. Of course, it's not all roses - Larry Summers famously made a terrible bet on interest rates that Harvard had to unwind at a large loss.

digikata 11y ago
Is the outsourcing somewhat recent? I've been reading through the actual text in the Piketty book and he discusses the relative advantages of large university endowments vs smaller ones. He has a data table in it for 1980-2010 where the returns seem pretty reasonable (but much higher for larger account balances of Harvard-Yale-Princeton). http://piketty.pse.ens.fr/files/capital21c/en/pdf/T12.2.pdf http://piketty.pse.ens.fr/files/capital21c/en/pdf/T12.2.pdf People can argue about his book's overall points, but few can argue that he's accumulated a lot of interesting data. I've been trying to reconcile that data with the Buffet view of complex hedge funds not beating straight index funds for gain... and by some other data Buffet is correct.. but the risk profiles may differ (Though it often feels like "risk" is the financial industry equivalent of engineering fudge factors).
- inthewoods 11y ago
  That's a great question - when I was in the industry (back in 2005-2006) Harvard had already outsourced a large portion after their managers left. In many cases, the managers started up their own funds and then Harvard immediately placed money into them. I think the answer may be that Harvard (and others) continue to see decent returns - the question is at what cost relative to managing it internally.

digikata 11y ago

Is the outsourcing somewhat recent? I've been reading through the actual text in the Piketty book and he discusses the relative advantages of large university endowments vs smaller ones. He has a data table in it for 1980-2010 where the returns seem pretty reasonable (but much higher for larger account balances of Harvard-Yale-Princeton). http://piketty.pse.ens.fr/files/capital21c/en/pdf/T12.2.pdf http://piketty.pse.ens.fr/files/capital21c/en/pdf/T12.2.pdf People can argue about his book's overall points, but few can argue that he's accumulated a lot of interesting data. I've been trying to reconcile that data with the Buffet view of complex hedge funds not beating straight index funds for gain... and by some other data Buffet is correct.. but the risk profiles may differ (Though it often feels like "risk" is the financial industry equivalent of engineering fudge factors).

inthewoods 11y ago
That's a great question - when I was in the industry (back in 2005-2006) Harvard had already outsourced a large portion after their managers left. In many cases, the managers started up their own funds and then Harvard immediately placed money into them. I think the answer may be that Harvard (and others) continue to see decent returns - the question is at what cost relative to managing it internally.