Harvard loses $350M

[HoyaOnBothSides]

money.cnn.com/2007/08/01/markets/harvard_endowment/

We may be on the brink of seeing a difficult period for university endowments.

On the alternatives side, real estate is no longer an attractive proposition, private equity is turning down, hedge funds are decoupling..

Even on the "safe" investment side, with rating agencies completely dropping the ball on asset backed securities, many endowments who thought they had investments in these "AAA" rated securities will see losses.

Couple that with the increased cost of financing, we may see a big slowdown in capital improvement projects on many campuses. I wonder what Georgetown's exposure is here and how it will effect current and future expansion plans..

[DFW HOYA]

Harvard did not "lose" money on its endowmernt, only one segment did. It annually returns 14-18% on an endowment of $29B, so instead it's 10-12%.

Meanwhile, Georgetown has dropped from 71st to 76th in endowments over the last five years and suffered through 11 straight years in the red. Its June 2007 bond rating was BBB+, which, along with Boston U. were the only two major universities below A. (Other BBB+ universities include the likes of Widener, Stevens Tech, and the University of Portland).

Georgetown can't raise enough money to solve its problems without looking at the other side of the ledger as well.

[theexorcist]

Fully agree with DFW. When you place a lot of bets in a lot of different places, some won't work. Harvard has enough money to take more risks. Georgetown, as mentioned, doesn't.

[HoyaOnBothSides]

I think we're confusing (or incorrectly linking) a few issues here. The management of an endowment and the financial health of a university (which includes fundraising) are two different animals - related yes, but independent.

I'm simply saying that things are lining up for endowments to have a very difficult time putting up the kind of results that (as you mention above) they have, big and small endowments alike. Of course, this is true for any fund (endowment, pension, foundation) that has to meet liabilities - but given those organizations' tendencies toward less volatile assets - when those assets turn out to be MORE volatile (AAA rated securites that lose 10% of their value, hedge funds that an endowment invests in because of their "short" book turn are highly levered and lose their entire value), there's going to be trouble.

[theexorcist]

Not really. There's always money to be made. And Harvard and other organizations have usually been more aggressive - they were investing in China a decade ago. You can afford to take more risks with your money if you have more of it. Harvard has very few constraints - the endowment can just sit in a savings account and earn interest and they could still buy most of Vermont.

[hilltopper2000]

"Georgetown can't raise enough money to solve its problems without looking at the other side of the ledger as well."

- We'd better figure out how to. There is no way the school can cut more money from the budget and continue to compete. Our fundraising is still far below where it can be. I'll be interested to see what the total is from this past year. I imagine it will be announced soon. Duke--a school with a comparable alumni base but a far more sophisticated operation--pulls in between $300 and $400 million each year; GU is between $100 and $150 million. That's not going to cut it. The new campaign should be at least an 8-year $2 billion effort. I think/think Jim Langley gets it and will finally build a modern fundraising operation at GU.

[Filo]

theexorcist said:

Not really. There's always money to be made. And Harvard and other organizations have usually been more aggressive - they were investing in China a decade ago. You can afford to take more risks with your money if you have more of it. Harvard has very few constraints - the endowment can just sit in a savings account and earn interest and they could still buy most of Vermont.

But the point is, Harvard won't be satisifed with a savings a/c return on its endowment. When money managers try to match high returns from previous years, they move towards riskier investments (assuming that we are not in a real bull market). That's when losses like this become more common.

[Nevada Hoya]

dfw said:

Harvard did not "lose" money on its endowmernt, only one segment did. It annually returns 14-18% on an endowment of $29B, so instead it's 10-12%.

Meanwhile, Georgetown has dropped from 71st to 76th in endowments over the last five years and suffered through 11 straight years in the red. Its June 2007 bond rating was BBB+, which, along with Boston U. were the only two major universities below A. (Other BBB+ universities include the likes of Widener, Stevens Tech, and the University of Portland).

Georgetown can't raise enough money to solve its problems without looking at the other side of the ledger as well.

DFW, hey why are you calling UP a non-major university? That have at least $80K of my money.