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Subject: Harvard Throwing In The Towel on Endowment Management


Author:
Anthony
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Date Posted: 14:19:16 01/25/17 Wed

Harvard announced today that it will shut down almost all of its internal money management operations. The only assets which will remain in-house are natural resources and passive ETFs, both essentially passive investments. This marks the end of Harvard being the lone outlier among the biggest endowments by managing a considerable portion of its assets with its own portfolio managers. The staff has been told that they will lose their jobs by mid-year.

I don't think that Harvard's problem was in-house structure versus outsourced. One of the reasons why in-house made sense for Harvard was that it had the greatest economies of scale as a potential reward for managing money internally.

No, the problem was not in-house management, it was terrible performance. Bad decisions year-in and year-out since the market top in 2007.

Harvard has literally posted one of the worst ten-year stretches ever in the history of large, diversified endowments. The size of Harvard's *UNDER*performance versus Princeton and Yale over the past decade, roughly $12-13 billion, would itself be the eighth largest endowment in the country. It's as if Harvard took MIT's current $12.5 billion endowment and set a match to it.

It will be interesting to see whether Harvard's endowment takes another hit when being transferred outside. Illiquid long-term portfolios are sometimes inaccurately marked, typically during periods of underperformance. The new external managers will insist on re-marking the assets when they take over. Let's see how honest Harvard's soon-to-be-fired managers have been.

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[> Subject: Re: Harvard Throwing In The Towel on Endowment Management


Author:
sparman
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Date Posted: 09:49:30 01/26/17 Thu

"It's as if Harvard took MIT's current $12.5 billion endowment and set a match to it."

Amazing illustration.

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[> [> Subject: Re: Harvard Throwing In The Towel on Endowment Management


Author:
remember it well (hot breakfests)
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Date Posted: 10:36:54 01/26/17 Thu

Not that long ago a number of us mentioned on this board there are a variety of well known low cost index funds that historically beat the performance of Ivy endowments and hedge funds as well. Just ask Warren Buffet or John Bogle. Guess someone in Cambridge finally realized that. If they made the change earlier perhaps Harvard students would be able to have hot breakfasts again. Maybe the boosters who are enhancing certain coaches salaries e.g. Amaker should also endow some funds to respond to Harvard students'protein needs as described in the link below. Brings to mind Oliver Twist at the gruel line saying "Please Sir I want more.."

http://www.thecrimson.com/article/2016/5/6/UC-breakfast-survey/

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[> Subject: Re: Harvard Throwing In The Towel on Endowment Management


Author:
IvyVoyeur
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Date Posted: 11:21:44 01/26/17 Thu

This thread suggests the question again, when is a school fully endowed? How much is enough? I don't intend the question rhetorically, as a way of criticizing HYP's fundraising and endowment activities. I mean it as a real question. Is there a number that schools aim for? If not what would that number look like? Or is it just a matter of continually raising as much as possible in a never-ending quest? (For the vast majority of schools, fundraising won't end. They will never reach a saturation level. My question is directed at the prestige schools.)

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[> [> Subject: Re: Harvard Throwing In The Towel on Endowment Management


Author:
An Observer
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Date Posted: 11:57:08 01/26/17 Thu

What did Wallis Simpson say? "You can never be too rich or too thin."

With our increased understanding today of anorexia, I think insightful Wallis might revise her comment to the more recent and more focused observation, "Everybody needs money. That's why they call it money."

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[> [> Subject: Re: Harvard Throwing In The Towel on Endowment Management


Author:
joiseyfan
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Date Posted: 17:28:32 01/26/17 Thu

Actually, a very sensible question. Princeton, for example, uses 5-6% of its endowment toward its annual budget. So, to vastly oversimplify, if the endowment reached 20x the annual budget, they'd be effectively fully funded, at least for the time being.

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[> [> [> Subject: Re: Harvard Throwing In The Towel on Endowment Management


Author:
Calvin
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Date Posted: 11:36:25 01/27/17 Fri

5% of the endowment principal, or of the income?

Spending principal is not usually a viable long-term approach.

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[> [> [> [> Subject: Re: Harvard Throwing In The Towel on Endowment Management


Author:
joiseyfan
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Date Posted: 15:43:06 01/27/17 Fri

Principal. Look it up.

If the major institutions continue to horde funds, the Feds are liable to require them to spend more than that if they want to remain tax exempt.

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[> Subject: Re: Harvard Throwing In The Towel on Endowment Management


Author:
Calvin
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Date Posted: 12:50:05 01/26/17 Thu

Or as some might say, Harvard has massively and regularly underperformed due to unprecedented shrinkage and its endowment has been exposed as having been huuuuugely over-touted.

(Yes, it's cheap, but you knew this was coming.)

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[> [> Subject: Re: Harvard Throwing In The Towel on Endowment Management


Author:
West Coast Crimson
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Date Posted: 13:14:14 01/26/17 Thu

It was also stupid

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[> [> [> Subject: Re: Harvard Throwing In The Towel on Endowment Management


Author:
Calvin
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Date Posted: 11:37:54 01/27/17 Fri

Look at the bright side, if Harvard has fixed its issues, there can be no more jokes about its performance.

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[> [> Subject: Re: Harvard Throwing In The Towel on Endowment Management


Author:
Ivy Voyeur
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Date Posted: 13:11:40 01/27/17 Fri

How small were John Harvard's hands?

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[> [> [> Subject: Re: Harvard Throwing In The Towel on Endowment Management


Author:
Calvin
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Date Posted: 16:43:35 01/27/17 Fri

Originally, or after photoshop?

https://www.washingtonpost.com/news/politics/wp/2017/01/27/no-the-white-house-didnt-photoshop-an-image-of-the-presidents-hand/?hpid=hp_rhp-more-top-stories_no-name%3Ahomepage%2Fstory&utm_term=.09e11e388d3a

(Check the final screen grab in the article)

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[> [> [> [> Subject: Re: Harvard Throwing In The Towel on Endowment Management


Author:
An Observer
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Date Posted: 17:00:22 01/27/17 Fri

Calvin, you must be a hit at any cocktail party you attend. Thank you for the WashPo article on "Did he or did he not photoshop?"

I think Trump does have tiny hands for a man of his height. It's no shame to have gained some weight by age 70, but now his overall body volume swamps his hands on a relative basis.

Every time he makes his signature raised pointed index finger move during speeches, it's very noticeable how small his mitts are.

You know what they say: Small hands. . . . small gloves.

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[> [> [> [> Subject: Thanks, but I'm only reporting the news.


Author:
Calvin
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Date Posted: 19:08:47 01/27/17 Fri

And not so much at Cambridge parties,🏡I'm afraid.

But I appreciate your kind words.

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[> Subject: Re: Harvard Throwing In The Towel on Endowment Management


Author:
An Observer
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Date Posted: 18:07:22 01/29/17 Sun

According to this article from The Crimson, in 2015, McKinsey & Company conducted a review of Harvard Management Company which concluded that the endowment management's corporate culture was "lazy, fat and stupid."

https://www.thecrimson.com/article/2017/1/26/hmc-layoff-staff/

Jack Meyer probably cannot believe what his successors did to the operation that he built and ran with great investment returns.

Lesson: People matter. Harvard has structural advantages in the investment business: a long-term, arguably infinite investment time horizon; economies of scale; a brand name which allows it to negotiate better terms with every one of its business partners; a brand name which should attract the best people in the industry and pay them commensurately because of the economies of scale.

But with inferior people, you get inferior results.

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