Friday, September 11, 2009


Really stellar job done by the much touted endowment investment groups of Harvard and Yale. For years the two schools have blown their own horns as to their investment acumen. David Swenson, Yale's investment office head, even wrote an investment book that was a big hit with the endowment and foundation crowd.

But Yale's and Harvard's 30% losses over the past year is even worse. First of all the year ended June 30. Many investors have recovered somewhat in the rebound since March. But not Yale and Harvard. Both institutions have a very low percentage of their portfolios in public equities and apparently a high percentage in illiquid investments. Investments which haven't rebounded and if they are in commercial real estate, still may go down. The Brown University story is also telling.

Clearly the endowments were entirely too illiquid. This wouldn't be so bad, but these universities used their endowments to fund significant portions of their operating budgets. So perversely, these schools, which still have multi-billion dollar budgets, have to resort to cost containment actions such as wage freezes, hiring freezes, cost and service cuts and capital expenditure deferments.

The losses are understandable given what has transpired over the past year, but the lack of liquidity given how much their annual operating budgets depended on the endowments is a little perplexing.

Cheers, Mike

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