Harvard's endowment loses the GDP of a small country in 5 months
03 Dec 2008 01:14 pm
According to the Journal, it's dropped 22% since June 30. I assume this puts the kibosh on their plans to offer free tuition to everyone except the very affluent.
And that's actually better than the DOW, which over the same period (as of close yesterday) is down around 26%. I guess that just means that they had too much money in stocks.
If 22% of Harvard's endowment is the GDP of a small country, then they still have the GDP of roughly four small countries left. I'm not going to spend too much time crying over it.
And how many billions does the endowment still have left? 30? 50? More?
It's, uhm, in the article. The endowment stood at nearly $37B as of June 30, and has lost 22% of its value (or $8B) in liquid investments and an unknown additional amount in illiquid investments, which are expected to bring the total decline more into the range of 30%.
Or in other words, Harvard can just barely afford to bail out GM.
Or in other words, Harvard can just barely afford to bail out GM.
I think they should pull a hostile takeover and have their B-school faculty run the place. Then they can prove they really do know what they're talking about!
If the education is half as good as the cachet, it's a low-risk investment.
The better way to think about this, Megan: Harvard's loss is greater than the entire endowment of all but four other schools: Yale, Stanford, Princeton, and MIT. When Harvard fails, Harvard fails big.
How do you figure they failed? Being down 22% when the market is down 26% is still an above average return. When you have a 500+ year time horizon you need to be in equities and the best you can hope for is to earn a slightly above average return.
As aMouse points out above, the -22% isn't really accurate because endowments have yet to mark most of their Private Equity and Real Estate investments to market. So the part of their portfolios that are most highly levered, and most highly illiquid, thus, ceterus paribus, the most down in price, are not marked to market.
I assume this puts the kibosh on their plans to offer free tuition to everyone except the very affluent.
Good god, why? They can still afford to do so many times over, if they could just understand that they don't actually NEED to undertake absurdities like the "across the bridge" expansion.
Actually -- and I am at least a little involved in this process -- it doesn't, last I heard (which was recently and from official sources) that tuition plan is still full speed ahead. And it does affect some of their other plans. Which doesn't seem to prevent Freddie chastising them without information, but what's new?
Didn't their prior investment head, Jack Meyer, leave because people complained about the $7 million he was getting paid? That's about the most expensive $7 million anyone has ever saved.
I assume this puts the kibosh on their plans to offer free tuition to everyone except the very affluent.
Cool, when will you kibosh the misrepresentation and snark at programs designed to help low-income students get a quality education?
I mean, you libertarians are allegedly only against the government helping the poor, right? I'd think you'd have no problem with a private company doing it.
Calling a program that guarantees tuition for all students with parents making less than $200k a program for everyone but the very affluent might be a misrepresentation. However, is that a greater misrepresentation than politicians who claim that those who make over $200k are the very rich?
McCain _is_ a great American; the candidate for whom I voted, however, won. Intelligent comment though.
"It exists as an excuse to raise money" is a dumb, unfounded claim. Some of the new research centers are amazing, and have facilities that didn't exist before. That's impressive because it's enabled, for example, really the creation of a whole new bioengineering group which didn't exist before on the campus, and which is doing useful work. I know because I've worked at both locales, and collaborated with people from both. You know differently about that construction ... how, exactly? How do you evaluate what the new campus space already built up has been doing?
Two weeks ago I met with a young man from a poor military family, neither of whose parents went to college. He's talented, ambitious -- and interested in bioengineering, which really wasn't strong at Harvard before very recent expansions which were conceived, really, as a parcel with the Allston project. He was impressed in part by the great synthetic bio research being done there by one particular prof (who's also a reservist with the 82nd Airborne, so there's a bit of a connection), whose position exists because of that expansion. SO that work creates great new, real research, and attracts new kinds of students who really benefit, and who, wonderfully, get to go to Harvard _free_ because of that fundraising. Which fundraising appeals to alums who are prominent in the fields they're trying to bolster and so can, y'know, distinguish intelligently between what's _useful_ construction and what is a boondoggle to raise money.
But I'm sure that argument loses to uninformed bloviation.
Calling a program that guarantees tuition for all students with parents making less than $200k a program for everyone but the very affluent might be a misrepresentation.
I don't know all the details, but according to their aid website, assistance, not guarantee, is provided for those making under 180K
However, is that a greater misrepresentation than politicians who claim that those who make over $200k are the very rich?
What about a ridiculous non sequitur bolsters any arguments being made here?
As with all libertarians, dude, your prejudices are showing.
200K isn't "very rich", but it's certainly rich. My family makes that, and I have a hard time thinking of anything we can't afford that a person with reasonable expectations would want.
Good on Harvard for wanting to make it easier for low-income students to attend. It's good for the economy for as many intelligent people as possible to get a top-level education; if someone's good enough to be able to get into Harvard without being rich and going to the top private schools in the country, it's a waste of that for them to be unable to attend for financial reasons.
jmo- you don't necessarily have to be "in equities." At that size and time horizon, some weird things you wouldn't normally put in a personal portfolio (I'm thinking of timber) become interesting. As far as I can tell, well, big university endowment portfolios are pretty different.
As a Harvard student, I have some perspective on this (I can also use the "Internet" to look up "information," which is apparently beyond some commenters on the blog ).
First, Harvard doesn't guarantee tuition to "everyone but the very affluent." If your family earns under $60K (that's me!) you go free. If you earn $60K-$120K you pay something between 0-10%. If you're making between $120K-$180K you pay 10%. Above $180K I have no idea, but I imagine it scales quickly to paying full tuition.
Second, according to Drew Faust's email of Nov. 10, which by the way mentioned Moody's projection of a 30% drop in college endowments, Harvard is sticking to its plan on financial aid, at least:
"As we plan, we must also affirm our strong commitment to financial aid for our students. In Harvard College, that will mean carrying forward our recent years' initiatives to make a Harvard education affordable for outstanding students from low- and middle-income families. As before, families with incomes below $60,000 will pay nothing to send a child to Harvard College, and families with incomes up to $180,000 and typical assets can expect to pay no more than approximately 10 percent of income. Across our graduate and professional schools, we will maintain financial aid budgets at least at their current levels -- and ensure that our students still have access to needed loans, even though many banks are making them less readily available."
What will be axed is still vague, although I've heard about a hiring freeze. I'd imagine the expansion to Allston may be delayed or scaled back. Incidentally, Freddy should take note that the over-the-river expansion is for a *science campus*. Investing in science and technology--what a terrible idea, especially when spurred by private initiative.
Shouldn't the standard for what Harvard can afford on the basis of endowment be the income from said endowment, not what it could be sold for? Income may also be down, but no figures have appeared here.
Oh, and while this blog is about economics, not engineering education, let me suggest that the smart former soldier might steer away from "bioengineering." Same for systems engineering, ecoengineering, robotics, or any of the sexy sounding non-traditional engineering disciplines at the bachelor's level. He should get a fundamental trade first, such as electrical, mechanical, civil, chemical, or computer engineering. At the graduate level narrower interests should be indulged. I've known several engineers with chi-chi BS degrees from prestigious schools, albeit not Harvard, who were seen in the working world as neither fish nor fowl. They had to go back to school to learn what their (typically mechanical) peers already knew.
I'm no economist, so feel free to lambaste this thinking as you will, but if I were to put Harvard's endowment in my trusty savings account, garnering 5% per year if the balance is over $100,000, then the current endowment level would garner roughly $1.5 billion. That's twice the amount it would cost to offer free education to every undergraduate and post-graduate student at Harvard. If you cut the support for post-graduates, excepting special cases, it's enough to pay the salaries of all the faculty and staff, and offer free tuition to undergraduates, without eating away at the capital.
So, then, why again can't they do this?
I guess it's just preferable to pay 5% or so of the fund's capitalization to the fund managers as their yearly compensation.
Hey Owen, I think I hit your points already but thanks for the follow-up.
You're asking something unfair of Freddie. Being able to judge whether a given academic expansion is useful or a boondoggle requires actual demonstrated knowledge and expertise in a subject area related to the expansion. Freddie's expertise, based on most of his posting, is in what he wishes libertarians would admit they actually think and what he wishes conservatives would admit that they actually think and occasionally if we're lucky what he wishes actual, involved liberals like me who don't happen to see their ideology as mostly just bitching would admit that they actually think, or maybe even what Ms. McArdle thinks Harvard thinks. It's an expertise to which I have to defer because, having managed to actually get paid for what I myself think since Freddie was in diapers, I really have very little skill at thinking about what I think you think.
Ken, I'm not actually a former soldier. I don't believe I've said I am, either.
What you're sayng isn't in practice true and is bad advice for new students. Nowadays to get into grad school in hard science, you really, really want to've done some undergrad lab research. In that sense even the med school campus has historically been very useful to undergrads going into biophys/bioeng. Again, it's something I do in fact know rather a lot about (although I worked as, and had my own business as, an optical engineer for a long time so it ain't all been bio). Furthermore a Harvard science undergrad who's worth much is taking lower-level grad classes frm his/her second year on, so it actually does matter considerably that those faculty/resouces are there. But as a Harvard undergrad I certainly spent a lot of time in the grad biophysics areas and at the med school (and, hell, I was an American lit guy...)
I'd be happy to pick it up offline and learn more about your engineering background; science nerds can probably hijack a thread fast.....
it's a waste of that for them to be unable to attend [Harvard] for financial reasons.
This presumes that they can't do just as well at a cheaper school, a premise I would dispute despite having attended a school which rates mention on this very blog as having considerable snob appeal.
And that's actually better than the DOW, which over the same period (as of close yesterday) is down around 26%. I guess that just means that they had too much money in stocks.
If 22% of Harvard's endowment is the GDP of a small country, then they still have the GDP of roughly four small countries left. I'm not going to spend too much time crying over it.
And how many billions does the endowment still have left? 30? 50? More?
And how many billions does the endowment still have left? 30? 50? More?
It's, uhm, in the article. The endowment stood at nearly $37B as of June 30, and has lost 22% of its value (or $8B) in liquid investments and an unknown additional amount in illiquid investments, which are expected to bring the total decline more into the range of 30%.
Or in other words, Harvard can just barely afford to bail out GM.
Or in other words, Harvard can just barely afford to bail out GM.
I think they should pull a hostile takeover and have their B-school faculty run the place. Then they can prove they really do know what they're talking about!
If the education is half as good as the cachet, it's a low-risk investment.
The better way to think about this, Megan: Harvard's loss is greater than the entire endowment of all but four other schools: Yale, Stanford, Princeton, and MIT. When Harvard fails, Harvard fails big.
CWD,
"When Harvard fails, Harvard fails big."
How do you figure they failed? Being down 22% when the market is down 26% is still an above average return. When you have a 500+ year time horizon you need to be in equities and the best you can hope for is to earn a slightly above average return.
As aMouse points out above, the -22% isn't really accurate because endowments have yet to mark most of their Private Equity and Real Estate investments to market. So the part of their portfolios that are most highly levered, and most highly illiquid, thus, ceterus paribus, the most down in price, are not marked to market.
I assume this puts the kibosh on their plans to offer free tuition to everyone except the very affluent.
Good god, why? They can still afford to do so many times over, if they could just understand that they don't actually NEED to undertake absurdities like the "across the bridge" expansion.
http://lhote.blogspot.com/2008/11/university-in-time-of-financial-crisis.html
Actually -- and I am at least a little involved in this process -- it doesn't, last I heard (which was recently and from official sources) that tuition plan is still full speed ahead. And it does affect some of their other plans. Which doesn't seem to prevent Freddie chastising them without information, but what's new?
And, Freddie, care to explain why that expansion is absurd?
What on earth does "it doesn't" refer to?
The expansion is absurd because, like many college expansion projects, it both exists to raise money and as an excuse to raise money.
And, by the way, Sanjay, just asserting that things are true doesn't make them true. But what else is new?
Which doesn't seem to prevent Freddie chastising them without information,
Uh, Sanjay, I'm reacting to Megan's supposition, which makes sense, since this is the comments box for Megan's blog. See?
Congrats on your boy McCain. What a great American.
Didn't their prior investment head, Jack Meyer, leave because people complained about the $7 million he was getting paid? That's about the most expensive $7 million anyone has ever saved.
Their President is Dr. Faust? You think he could work out some sort of a ... deal to get them back on track.
I mean, you libertarians are allegedly only against the government helping the poor, right? I'd think you'd have no problem with a private company doing it.
Oh, wait, that's right, you're completely disingenuous.
Calling a program that guarantees tuition for all students with parents making less than $200k a program for everyone but the very affluent might be a misrepresentation. However, is that a greater misrepresentation than politicians who claim that those who make over $200k are the very rich?
McCain _is_ a great American; the candidate for whom I voted, however, won. Intelligent comment though.
"It exists as an excuse to raise money" is a dumb, unfounded claim. Some of the new research centers are amazing, and have facilities that didn't exist before. That's impressive because it's enabled, for example, really the creation of a whole new bioengineering group which didn't exist before on the campus, and which is doing useful work. I know because I've worked at both locales, and collaborated with people from both. You know differently about that construction ... how, exactly? How do you evaluate what the new campus space already built up has been doing?
Two weeks ago I met with a young man from a poor military family, neither of whose parents went to college. He's talented, ambitious -- and interested in bioengineering, which really wasn't strong at Harvard before very recent expansions which were conceived, really, as a parcel with the Allston project. He was impressed in part by the great synthetic bio research being done there by one particular prof (who's also a reservist with the 82nd Airborne, so there's a bit of a connection), whose position exists because of that expansion. SO that work creates great new, real research, and attracts new kinds of students who really benefit, and who, wonderfully, get to go to Harvard _free_ because of that fundraising. Which fundraising appeals to alums who are prominent in the fields they're trying to bolster and so can, y'know, distinguish intelligently between what's _useful_ construction and what is a boondoggle to raise money.
But I'm sure that argument loses to uninformed bloviation.
Sean E -- he's a she.
As with all libertarians, dude, your prejudices are showing.
200K isn't "very rich", but it's certainly rich. My family makes that, and I have a hard time thinking of anything we can't afford that a person with reasonable expectations would want.
Good on Harvard for wanting to make it easier for low-income students to attend. It's good for the economy for as many intelligent people as possible to get a top-level education; if someone's good enough to be able to get into Harvard without being rich and going to the top private schools in the country, it's a waste of that for them to be unable to attend for financial reasons.
jmo- you don't necessarily have to be "in equities." At that size and time horizon, some weird things you wouldn't normally put in a personal portfolio (I'm thinking of timber) become interesting. As far as I can tell, well, big university endowment portfolios are pretty different.
Rob Lyman wins the thread with pure kill-two-birds-with-one-stone innovative genius (more than 2 actually). Cheers man. Awesome.
As a Harvard student, I have some perspective on this (I can also use the "Internet" to look up "information," which is apparently beyond some commenters on the blog ).
First, Harvard doesn't guarantee tuition to "everyone but the very affluent." If your family earns under $60K (that's me!) you go free. If you earn $60K-$120K you pay something between 0-10%. If you're making between $120K-$180K you pay 10%. Above $180K I have no idea, but I imagine it scales quickly to paying full tuition.
Second, according to Drew Faust's email of Nov. 10, which by the way mentioned Moody's projection of a 30% drop in college endowments, Harvard is sticking to its plan on financial aid, at least:
"As we plan, we must also affirm our strong commitment to financial aid for our students. In Harvard College, that will mean carrying forward our recent years' initiatives to make a Harvard education affordable for outstanding students from low- and middle-income families. As before, families with incomes below $60,000 will pay nothing to send a child to Harvard College, and families with incomes up to $180,000 and typical assets can expect to pay no more than approximately 10 percent of income. Across our graduate and professional schools, we will maintain financial aid budgets at least at their current levels -- and ensure that our students still have access to needed loans, even though many banks are making them less readily available."
What will be axed is still vague, although I've heard about a hiring freeze. I'd imagine the expansion to Allston may be delayed or scaled back. Incidentally, Freddy should take note that the over-the-river expansion is for a *science campus*. Investing in science and technology--what a terrible idea, especially when spurred by private initiative.
-Owen
Shouldn't the standard for what Harvard can afford on the basis of endowment be the income from said endowment, not what it could be sold for? Income may also be down, but no figures have appeared here.
Oh, and while this blog is about economics, not engineering education, let me suggest that the smart former soldier might steer away from "bioengineering." Same for systems engineering, ecoengineering, robotics, or any of the sexy sounding non-traditional engineering disciplines at the bachelor's level. He should get a fundamental trade first, such as electrical, mechanical, civil, chemical, or computer engineering. At the graduate level narrower interests should be indulged. I've known several engineers with chi-chi BS degrees from prestigious schools, albeit not Harvard, who were seen in the working world as neither fish nor fowl. They had to go back to school to learn what their (typically mechanical) peers already knew.
Ken
BSME, MSME
I'm no economist, so feel free to lambaste this thinking as you will, but if I were to put Harvard's endowment in my trusty savings account, garnering 5% per year if the balance is over $100,000, then the current endowment level would garner roughly $1.5 billion. That's twice the amount it would cost to offer free education to every undergraduate and post-graduate student at Harvard. If you cut the support for post-graduates, excepting special cases, it's enough to pay the salaries of all the faculty and staff, and offer free tuition to undergraduates, without eating away at the capital.
So, then, why again can't they do this?
I guess it's just preferable to pay 5% or so of the fund's capitalization to the fund managers as their yearly compensation.
Hey Owen, I think I hit your points already but thanks for the follow-up.
You're asking something unfair of Freddie. Being able to judge whether a given academic expansion is useful or a boondoggle requires actual demonstrated knowledge and expertise in a subject area related to the expansion. Freddie's expertise, based on most of his posting, is in what he wishes libertarians would admit they actually think and what he wishes conservatives would admit that they actually think and occasionally if we're lucky what he wishes actual, involved liberals like me who don't happen to see their ideology as mostly just bitching would admit that they actually think, or maybe even what Ms. McArdle thinks Harvard thinks. It's an expertise to which I have to defer because, having managed to actually get paid for what I myself think since Freddie was in diapers, I really have very little skill at thinking about what I think you think.
Ken, I'm not actually a former soldier. I don't believe I've said I am, either.
What you're sayng isn't in practice true and is bad advice for new students. Nowadays to get into grad school in hard science, you really, really want to've done some undergrad lab research. In that sense even the med school campus has historically been very useful to undergrads going into biophys/bioeng. Again, it's something I do in fact know rather a lot about (although I worked as, and had my own business as, an optical engineer for a long time so it ain't all been bio). Furthermore a Harvard science undergrad who's worth much is taking lower-level grad classes frm his/her second year on, so it actually does matter considerably that those faculty/resouces are there. But as a Harvard undergrad I certainly spent a lot of time in the grad biophysics areas and at the med school (and, hell, I was an American lit guy...)
I'd be happy to pick it up offline and learn more about your engineering background; science nerds can probably hijack a thread fast.....
Kaykuri, you are far too kind.
it's a waste of that for them to be unable to attend [Harvard] for financial reasons.
This presumes that they can't do just as well at a cheaper school, a premise I would dispute despite having attended a school which rates mention on this very blog as having considerable snob appeal.
Sanjay,
I'm ken@sqrt-1.com
Ken