To Be Or Not To Be Well Endowed

Currently, tuition billed at Harvard is $47, 215, which includes room and board.  That means the real cost is $70,820.  ($11,000 of this billed cost is room and board.) 


Harvard University announced Friday that its endowment had reached $36.9 billion, the Associated Press reported.  Harvard University’s endowment has survived a transition in leadership as Mohamed El-Erian (Pacific Investment Management Company CEO) stepped down last December as president of Harvard Management Co., which oversees the endowment, and in the interim, Harvard Business School professor Robert Kaplan took over on until July 1, 2008 when Jane Mendillo became the new president of this quasi-independent agency.  Despite market turbulence in the recently completed fiscal year, the endowment had earned an 8.6 percent return during the fiscal year ending June 30.  The Associated Press reported that from the endowment, the university provided $321 million in student aid last year and funded about a third of its operating budget. 


The history of Harvard, according to the Harvard website, “Harvard College was established in 1636 by vote of the Great and General Court of the Massachusetts Bay Colony College.  Though never formally affiliated with a specific religious denomination, Harvard was named for its first benefactor, John Harvard of Charlestown, a young minister who upon his death in 1638 left his library and half his estate to the new institution. The 1708 election of John Leverett, the first president who was not also a clergyman, marked a turning of the College toward intellectual independence from Puritanism.” 


Separating itself from hits religious tradition, like many Americans had, Harvard became secular.  Money.  Philosophy.  So much money.  In lieu of the salaries paid to other Harvard Business School professors, how did Harvard have a system of remuneration to a professor like Robert Kaplan?  Retention of teachers was the core of what a university was about.  So Harvard was the New York Yankees of American universities?  


In a sense, Harvard could teach a lot to how the federal  and state governments managed tax revenues. 


Basic human needs were paid for by money. Money. Money.  Money.  Looking for comforts, to ease the suffering.  Looking for education.  The conflict of student aid last year versus operating budgets.  The percentages were “about” 33% in favor of the operating budget, which seemed to serve the entire student body, without a cited mention of the operating budget in the article.  However, even with imprecise math, the endowment grew by $2.85 billion with $321 million in student aid.   


Harvard seeks to spend about 5 percent of the endowment annually on University programs. Each school within the university uses a combination of income from investments, gifts from fundraising efforts, and tuition to cover the cost of educating students.  Faculties of Arts and Sciences and the Divinity School rely on 46 and 66 percent of their operating expenditures, respectively, from their endowments as of 2006. 


The endowment is not a single fund, but around 11,000 individual funds, many of them restricted to specific uses such as support of a research center or the creation of a professorship in a specific subject.  On a per-capita basis. Harvard’s $36.9 billion endowment trails Princeton’s $16 billion endowment.  


Separating itself from hits religious tradition, 360-plus years later secular Harvard was less like a lot of colleges and universities, hitting up donors, offering to re-name building long identified with deceased donors.   But at this point Harvard in its history, like most of us, seemed to be out strictly for itself.  Concerned about wealth and survival. 


Those Puritans however never really tried to ease all the suffering.  What exactly was salvation history?  The long haul of this?  To ease the comfort, God promised His Chosen People a Messiah one day.  To make this life a little easier, more comfort for more people.   But was to that year that marked a turning of the Harvard College toward intellectual independence from Puritanism.  What exactly was “intellectual independence” when it came to God?  And how did it change the basic philosophy of Harvard College?   


In a February 2009 story in the NewYork Times, it was reported that Harvard had sent in early December 2008 a letter to deans “saying that the university’s $36.9 billion endowment had lost 22 percent of its value in the previous four months and could decline as much as 30 percent by June 30, the end of its fiscal year.”

“Harvard University is facing endowment losses that could be the worst in 40 years. It has frozen salaries for faculty and nonunion staff members, and offered early retirement to 1,600 employees,” The New York Times reported.

How Harvard’s Investing Superstars Crashed

“In a glassed-walled conference room overlooking downtown Boston, traders at Harvard Management Co., the subsidiary that invests the school’s money, were fielding questions from their new boss, Jane Mendillo, about exotic financial instruments that were suddenly backfiring.

“Harvard had derivatives that gave it exposure to $7.2 billion in commodities and foreign stocks. With prices of both crashing, the university was getting margin calls–demands from counterparties (among them, JPMorgan Chase and Goldman Sach for more collateral. Another bunch of derivatives burdened Harvard with a multibillion-dollar bet on interest rates that went against it.

“It would have been nice to have cash on hand to meet margin calls, but Harvard had next to none. That was because these supremely self-confident money managers were more than fully invested. As of June 30, they had, thanks to the fancy derivatives, a 105% long position in risky assets. The effect is akin to putting every last dollar of your portfolio to work and then borrowing another 5% to buy more stocks.

“Desperate for cash, Harvard Management went to outside money managers begging for a return of money it had expected to keep parked away for a long time. It tried to sell off illiquid stakes in private equity partnerships but couldn’t get a decent price. It unloaded two-thirds of a $2.9 billion stock portfolio into a falling.”

It seemed true that whenever a new manager came in, new ideas took hold. It was a costly change that was made, when the successor did not seem to appreciate all the plates which were spinning.


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