7 ms·

The Collapse of Harvard’s $36.9 Billion Endowment

53 points by robg 17y ago

ja27 17y ago
It's been amazing. A good friend was laid off from what should have been a job for life there. I don't see how they're going to operate while eliminating people from nearly critical positions. If this would happen to my company, I'd expect the doors to close. If it happened to any of our competitors, we'd be throwing a victory party.
- mahmud 17y ago
  OT: If it happened to any of our competitors, we'd be throwing a victory party. Instead of celebrating, you should be taking a very hard look at your business plan, and industry as a whole, possibly drawing big red question marks beside your previous hopes and assumptions. It's frightening to see your competition die.
- tokenadult 17y ago
  A good friend was laid off from what should have been a job for life there. Where else in the current economy do people expect to have jobs for life?
  - smhinsey 17y ago
    I think there's probably a decent chunk of government or quasi-government jobs (post office, amtrak) that are pretty reliable, but this recession has certainly shaken things to their core. Who knows these days?
deleted 17y ago
[deleted]
antipax 17y ago
Honestly, the article comes off kind of like someone who was a billionaire complaining about how they've become a millionaire. We don't get free coffee or free hot breakfast every weekday morning in the dorms at my school.
- sailormoon 17y ago
  I was thinking that too. Those poor diddumses! Next thing you know they'll have to do their own laundry. Harvard's demise might be a sobering economic indicator, but I wonder if there'd be many who actually mourned its passing? To me it's nothing but a old boy's club filled with entitled trust fund brats, and the only real benefit of going there is that you then get hired by the previous generation of intolerable WASP twats. And members of this little club seem to have made an outsize contribution to the ills of wall street, law, government and the current crisis. Who respects Harvard? Who'd miss it? Not I.
  - dantheman 17y ago
    I respect Harvard; they do great work. I think the world would significantly miss it if Harvard, it's really hard to respond to such a poor argument, but the medical school alone is a world changing institution.
    - sailormoon 17y ago
      Well, looks like their PR department does great work, indeed. But it's not just their token medical school - I think their business school and law departments have also been "world changing institutions", just maybe not in a positive way. Anyway this idea of having elite schools for an elite class is dangerous. Just look at the list below. Nepotism and class segregation by proxy, that's all Harvard is. Oh lookie, there's Obama! He went to Harvard, replacing GWB, who - surprise - went to Harvard. And the CEO of Goldman Sachs, who replaced the old CEO who also went to Harvard! What a coincidence. http://en.wikipedia.org/wiki/List_of_Harvard_Law_School_alumni http://en.wikipedia.org/wiki/List_of_Harvard_Law_School_alum... Make no mistake. Harvard is "The Man" writ in bricks and stone. I am not very much a fan of The Man, which is why I am not unhappy to see The Man in trouble financially. But no worries, if things really get bad I'm sure a bailout's on the way.
      - mistermann 17y ago
        Whats with the downvotes? I, for one, largely agree with you.
biohacker42 17y ago
Only a year ago, Harvard had a $36.9 billion endowment, the largest in academia. Now that endowment has imploded Was anyone able to get through all 6 pages and find what exactly imploded means?
- ajross 17y ago
  The important details are on the second page, and the explanation isn't very clear. But at it's core this is a liquidity crisis. Harvard hasn't lost all that much (maybe 25% if the $8B number holds up). But as a result of the recent aggressive investments, huge chunks of its endowment is in illiquid assets that can't themselves be used to fund the university. Combine that with some very liberal spending projects in recent years, and suddenly this very wealthy university can't actually pay its bills.
  - roc 17y ago
    Which is another way of saying: Harvard is still in denial. They (like many) are refusing to admit that they made bad investments that are no longer worth what they once were. So they're trying like hell to avoid realizing those losses, because that red ink would go on their permanent record. Which is tantamount to career suicide. (Hence the blame-gaming at all levels)
    - Retric 17y ago
      Selling in a down market can often be worse than debt. The cuts are extreme because they need to start thinking 1/2 the ROI * 70% of the endowment or ~35% of last year’s income. They must do a huge drop in spending over the next 10 years or they are going to actually run out of money.
      - roc 17y ago
        Assuming we're merely in a down market. Which is the standpoint which I categorize as 'denial'.
- CamperBob 17y ago
jacoblyles 17y ago
It baffles me that the first instinct of some students in response to massive budget deficits is to protest budget cuts and layoffs. They should move to California when they graduate, they would fit right in. I was on the mailing list of a few organizations that urged me to fight the state government's plans to cut back staff positions and hours in response to our multi-billion dollar hole. What do they think we should do, close our eyes and wish the deficit away?
- davi 17y ago
  Small subset, fun for author of article to profile. The one person I know personally who protested was concerned that the lowest paid, most vulnerable workers (janitors, contract security guards, etc.) were the first to feel the bite, ahead of the 'fat cats' who had the power within the institution to fight back to protect their turf. Most of us just said, "Eh, that's too bad" and went back to work.
  - mdasen 17y ago
    To play devil's advocate. . . It's not that the 'fat cats' have power to fight back. It's that they're less easily replaced. If you get rid of a janitor and need to replace them in a couple months because you really needed them, it's an easy HR process. If you get rid of a 'fat cat', there will be months of interviews to replace them, you might not get someone as good, etc. It's not that you have power in the institution, it's that you have other options and are of higher value to the institution. I mean, I'm a lowly computer programmer a couple years out of college. But if they wanted to replace me, there'd be a long interview process and then a huge learning curve as they brought the new person up to speed on the byzantine systems we have. So, they can't let me go as a test of whether they could get by without me because the cost if they're wrong is high. That doesn't make it righteous, it just means that it isn't simply having power in the institution so much as being of less easily replaced value to the institution.
    - vermontdevil 17y ago
      But isn't the same fat cats that got the whole business in trouble to begin with? So what makes them so valuable?
davi 17y ago
Most interesting was the idea of conservatism as an asset for some classes of enterprise: “Harvard, institutionally, never had change when I first came here,” the law professor Alan Dershowitz told me. “It was like the old baseball teams; you were born here and you died here.... But the turnover now has become like corporate turnover—and that always takes a toll.”
TrevorJ 17y ago
I wonder what perceptual damage this will do to the Harvard brand? Being one of the world's leading business school and being in financial trouble just doesn't look good.
- prodigal_erik 17y ago
  How much time do business schools spend on managing investments? It sounds like its own specialty, but I don't know where one learns it.
mdasen 17y ago
I thought that Alan Dershowitz' comment was particularly interesting: Apparently nobody in our financial office has read the story in Genesis about Joseph interpreting Pharaoh’s dream—you know, during the seven good years you save for the seven lean years. And now they’re coming hat in hand, pleading to the faculty and students to bear the burden of cutbacks. It’s a scandal! It’s an absolute scandal, the way Harvard has handled this financial crisis. The issue that a lot of organizations and businesses seem to be facing now is that they're doing like he says and spending in the fat years what they have which makes the lean years painful. However, this also applies to spending on salaries. As the article notes, Harvard spends a lot more on professor salaries than other Universities because, during the fat years, they spent what they had giving it to professors. And now Professor Dershowitz complains that he has to share in the lean years just as he shared in the fat years. There are only two plausible ways to do it. Either salaries stay at a pretty steady rate and don't rise in the fat years and hurt in the lean years because the rises are smaller -or- salaries run in tandem with the fat and lean years. You can't get huge raises in the fat years and expect it through the lean years as well. Now, clearly Harvard's building spree is the cause of some of the hurt, but it isn't like the faculty and students haven't taken their cut of the fat years with the highest professor salaries around and students who pay next to nothing in tuition. If you want in on the fat years, you get in on the lean years.
- lutorm 17y ago
  How do you infer that Dershowitz approved of the salary increases in the fat years?
  - mdasen 17y ago
    Well, if he didn't, then why would he complain about cutbacks? I'm not trying to pick on him or anything, it's just that he's quoted. But if your salary is increased from $150,000 to $200,000 and then you're asked to cut it down to $150,000, well, if you didn't approve of it in the first place the chances are that you'd be ok with going back. We often don't get to make those choices as individuals, but usually no one complains about their salary increasing. It's also totally possible that he's protesting on other people's behalf as I doubt he's hurting as a successful book author and probably one of their more well paid professors. But generally speaking, when a company is having fat years, people generally want a piece of it. I don't mean any disrespect to Professor Dershowitz. It's just that most people act like he acts - it's human nature. It's annoying when fat years are here and we don't get a cut. It's annoying when lean years come and people want us to make concessions. I feel that way too. It's completely devoid of reality, but it's an interesting part of our psychology.
dandrews 17y ago
"That Summers suggested women lacked a natural ability for sciences did not help matters one bit." That isn't quite accurate. Summers had prefaced his remarks saying "I'm going to provoke you", then pointed out that math and science test scores were higher for high school boys than for high school girls. No one understands why, he continued, but is it possible that genetics plays a part, and it is not strictly a socialization issue? He was castigated by some faculty members for those politically incorrect remarks. How DARE he even ask the question? See: http://www.boston.com/news/local/articles/2005/01/17/summers_remarks_on_women_draw_fire/ http://www.boston.com/news/local/articles/2005/01/17/summers...
- zurla 17y ago
  I think he actually argued that men might have a different distribution for mathematical ability than women. Specifically, he suggested men might have a higher variance in their distribution, meaning more men in the tails at both sides. But the distributions would still have the same mean. So men are not 'better than math' than women -- there would be more dumb ones and more smart ones, and less in the middle, effectively. This phenomenon, by the way, is commonly observed in other species for various genetic traits. From an evolutionary perspective, it makes sense for the males to "roll the dice" and have a higher variance for many traits. For example, one superstar male frog can have many more offspring than one average male frog. But one superstar female can really only have as many offspring as the average female. That's a crude over-simplified explanation, but the idea is sound.
  - davi 17y ago
    he suggested men might have a higher variance in their distribution, meaning more men in the tails at both sides That's my understanding as well. A professor I respect a lot presented his analysis of Summers' argument in a lecture I went to. This professor said that Summers' argument was statistically invalid, since the number of outliers in the tails of the IQ distribution was insufficient to tell if the distribution was in fact different at the tails between men and women. It's fair to say that this rebuttal was not the one Summers got when he presented his idea to the faculty. :)

53 points by robg 17y ago

ja27 17y ago

It's been amazing. A good friend was laid off from what should have been a job for life there. I don't see how they're going to operate while eliminating people from nearly critical positions. If this would happen to my company, I'd expect the doors to close. If it happened to any of our competitors, we'd be throwing a victory party.

mahmud 17y ago
OT: If it happened to any of our competitors, we'd be throwing a victory party. Instead of celebrating, you should be taking a very hard look at your business plan, and industry as a whole, possibly drawing big red question marks beside your previous hopes and assumptions. It's frightening to see your competition die.
tokenadult 17y ago
A good friend was laid off from what should have been a job for life there. Where else in the current economy do people expect to have jobs for life?
- smhinsey 17y ago
  I think there's probably a decent chunk of government or quasi-government jobs (post office, amtrak) that are pretty reliable, but this recession has certainly shaken things to their core. Who knows these days?

deleted 17y ago

[deleted]

antipax 17y ago

Honestly, the article comes off kind of like someone who was a billionaire complaining about how they've become a millionaire. We don't get free coffee or free hot breakfast every weekday morning in the dorms at my school.

sailormoon 17y ago
I was thinking that too. Those poor diddumses! Next thing you know they'll have to do their own laundry. Harvard's demise might be a sobering economic indicator, but I wonder if there'd be many who actually mourned its passing? To me it's nothing but a old boy's club filled with entitled trust fund brats, and the only real benefit of going there is that you then get hired by the previous generation of intolerable WASP twats. And members of this little club seem to have made an outsize contribution to the ills of wall street, law, government and the current crisis. Who respects Harvard? Who'd miss it? Not I.
- dantheman 17y ago
  I respect Harvard; they do great work. I think the world would significantly miss it if Harvard, it's really hard to respond to such a poor argument, but the medical school alone is a world changing institution.
  - sailormoon 17y ago
    Well, looks like their PR department does great work, indeed. But it's not just their token medical school - I think their business school and law departments have also been "world changing institutions", just maybe not in a positive way. Anyway this idea of having elite schools for an elite class is dangerous. Just look at the list below. Nepotism and class segregation by proxy, that's all Harvard is. Oh lookie, there's Obama! He went to Harvard, replacing GWB, who - surprise - went to Harvard. And the CEO of Goldman Sachs, who replaced the old CEO who also went to Harvard! What a coincidence. http://en.wikipedia.org/wiki/List_of_Harvard_Law_School_alumni http://en.wikipedia.org/wiki/List_of_Harvard_Law_School_alum... Make no mistake. Harvard is "The Man" writ in bricks and stone. I am not very much a fan of The Man, which is why I am not unhappy to see The Man in trouble financially. But no worries, if things really get bad I'm sure a bailout's on the way.
    - mistermann 17y ago
      Whats with the downvotes? I, for one, largely agree with you.

biohacker42 17y ago

Only a year ago, Harvard had a $36.9 billion endowment, the largest in academia. Now that endowment has imploded Was anyone able to get through all 6 pages and find what exactly imploded means?

ajross 17y ago
The important details are on the second page, and the explanation isn't very clear. But at it's core this is a liquidity crisis. Harvard hasn't lost all that much (maybe 25% if the $8B number holds up). But as a result of the recent aggressive investments, huge chunks of its endowment is in illiquid assets that can't themselves be used to fund the university. Combine that with some very liberal spending projects in recent years, and suddenly this very wealthy university can't actually pay its bills.
- roc 17y ago
  Which is another way of saying: Harvard is still in denial. They (like many) are refusing to admit that they made bad investments that are no longer worth what they once were. So they're trying like hell to avoid realizing those losses, because that red ink would go on their permanent record. Which is tantamount to career suicide. (Hence the blame-gaming at all levels)
  - Retric 17y ago
    Selling in a down market can often be worse than debt. The cuts are extreme because they need to start thinking 1/2 the ROI * 70% of the endowment or ~35% of last year’s income. They must do a huge drop in spending over the next 10 years or they are going to actually run out of money.
    - roc 17y ago
      Assuming we're merely in a down market. Which is the standpoint which I categorize as 'denial'.
CamperBob 17y ago

jacoblyles 17y ago

It baffles me that the first instinct of some students in response to massive budget deficits is to protest budget cuts and layoffs. They should move to California when they graduate, they would fit right in. I was on the mailing list of a few organizations that urged me to fight the state government's plans to cut back staff positions and hours in response to our multi-billion dollar hole. What do they think we should do, close our eyes and wish the deficit away?

davi 17y ago
Small subset, fun for author of article to profile. The one person I know personally who protested was concerned that the lowest paid, most vulnerable workers (janitors, contract security guards, etc.) were the first to feel the bite, ahead of the 'fat cats' who had the power within the institution to fight back to protect their turf. Most of us just said, "Eh, that's too bad" and went back to work.
- mdasen 17y ago
  To play devil's advocate. . . It's not that the 'fat cats' have power to fight back. It's that they're less easily replaced. If you get rid of a janitor and need to replace them in a couple months because you really needed them, it's an easy HR process. If you get rid of a 'fat cat', there will be months of interviews to replace them, you might not get someone as good, etc. It's not that you have power in the institution, it's that you have other options and are of higher value to the institution. I mean, I'm a lowly computer programmer a couple years out of college. But if they wanted to replace me, there'd be a long interview process and then a huge learning curve as they brought the new person up to speed on the byzantine systems we have. So, they can't let me go as a test of whether they could get by without me because the cost if they're wrong is high. That doesn't make it righteous, it just means that it isn't simply having power in the institution so much as being of less easily replaced value to the institution.
  - vermontdevil 17y ago
    But isn't the same fat cats that got the whole business in trouble to begin with? So what makes them so valuable?

davi 17y ago

Most interesting was the idea of conservatism as an asset for some classes of enterprise: “Harvard, institutionally, never had change when I first came here,” the law professor Alan Dershowitz told me. “It was like the old baseball teams; you were born here and you died here.... But the turnover now has become like corporate turnover—and that always takes a toll.”

TrevorJ 17y ago

I wonder what perceptual damage this will do to the Harvard brand? Being one of the world's leading business school and being in financial trouble just doesn't look good.

prodigal_erik 17y ago
How much time do business schools spend on managing investments? It sounds like its own specialty, but I don't know where one learns it.

mdasen 17y ago

I thought that Alan Dershowitz' comment was particularly interesting: Apparently nobody in our financial office has read the story in Genesis about Joseph interpreting Pharaoh’s dream—you know, during the seven good years you save for the seven lean years. And now they’re coming hat in hand, pleading to the faculty and students to bear the burden of cutbacks. It’s a scandal! It’s an absolute scandal, the way Harvard has handled this financial crisis. The issue that a lot of organizations and businesses seem to be facing now is that they're doing like he says and spending in the fat years what they have which makes the lean years painful. However, this also applies to spending on salaries. As the article notes, Harvard spends a lot more on professor salaries than other Universities because, during the fat years, they spent what they had giving it to professors. And now Professor Dershowitz complains that he has to share in the lean years just as he shared in the fat years. There are only two plausible ways to do it. Either salaries stay at a pretty steady rate and don't rise in the fat years and hurt in the lean years because the rises are smaller -or- salaries run in tandem with the fat and lean years. You can't get huge raises in the fat years and expect it through the lean years as well. Now, clearly Harvard's building spree is the cause of some of the hurt, but it isn't like the faculty and students haven't taken their cut of the fat years with the highest professor salaries around and students who pay next to nothing in tuition. If you want in on the fat years, you get in on the lean years.

lutorm 17y ago
How do you infer that Dershowitz approved of the salary increases in the fat years?
- mdasen 17y ago
  Well, if he didn't, then why would he complain about cutbacks? I'm not trying to pick on him or anything, it's just that he's quoted. But if your salary is increased from $150,000 to $200,000 and then you're asked to cut it down to $150,000, well, if you didn't approve of it in the first place the chances are that you'd be ok with going back. We often don't get to make those choices as individuals, but usually no one complains about their salary increasing. It's also totally possible that he's protesting on other people's behalf as I doubt he's hurting as a successful book author and probably one of their more well paid professors. But generally speaking, when a company is having fat years, people generally want a piece of it. I don't mean any disrespect to Professor Dershowitz. It's just that most people act like he acts - it's human nature. It's annoying when fat years are here and we don't get a cut. It's annoying when lean years come and people want us to make concessions. I feel that way too. It's completely devoid of reality, but it's an interesting part of our psychology.

dandrews 17y ago

"That Summers suggested women lacked a natural ability for sciences did not help matters one bit." That isn't quite accurate. Summers had prefaced his remarks saying "I'm going to provoke you", then pointed out that math and science test scores were higher for high school boys than for high school girls. No one understands why, he continued, but is it possible that genetics plays a part, and it is not strictly a socialization issue? He was castigated by some faculty members for those politically incorrect remarks. How DARE he even ask the question? See: http://www.boston.com/news/local/articles/2005/01/17/summers_remarks_on_women_draw_fire/ http://www.boston.com/news/local/articles/2005/01/17/summers...

zurla 17y ago
I think he actually argued that men might have a different distribution for mathematical ability than women. Specifically, he suggested men might have a higher variance in their distribution, meaning more men in the tails at both sides. But the distributions would still have the same mean. So men are not 'better than math' than women -- there would be more dumb ones and more smart ones, and less in the middle, effectively. This phenomenon, by the way, is commonly observed in other species for various genetic traits. From an evolutionary perspective, it makes sense for the males to "roll the dice" and have a higher variance for many traits. For example, one superstar male frog can have many more offspring than one average male frog. But one superstar female can really only have as many offspring as the average female. That's a crude over-simplified explanation, but the idea is sound.
- davi 17y ago
  he suggested men might have a higher variance in their distribution, meaning more men in the tails at both sides That's my understanding as well. A professor I respect a lot presented his analysis of Summers' argument in a lecture I went to. This professor said that Summers' argument was statistically invalid, since the number of outliers in the tails of the IQ distribution was insufficient to tell if the distribution was in fact different at the tails between men and women. It's fair to say that this rebuttal was not the one Summers got when he presented his idea to the faculty. :)