Harvard grads, you can’t escape it. Yale grads, you can’t either.
Everywhere you look, there’s another story about your alma mater’s shrinking endowment, each one carrying the same subliminal message: give.
Schools are almost too eager to talk about, and play up, the extent to which their buffeted endowments will mean lower spending, scaled-back ambitions and layoffs.
Bloomberg: “We can’t discount the fact that the universities are now poor,” said Robert Merton, a professor at Harvard Business School in Boston who won the Nobel prize for economics in 1997 with Myron Scholes for their work on pricing options. “If they’re going to be poor, they are going to make changes as a result.”
Administrators didn’t adequately understand the impact that endowment losses would have on school finances and overlooked the risk managers were taking, said Merton, who wrote a paper titled “Optimal Investment Strategies for University Endowment Funds.”
Part of the problem, especially at Harvard, but also at Yale and elsewhere, is that the universities made all kinds of private equity commitments, and other investments that have prevented them from capturing the upside of the rebounding market.
According to one “expert” estimate, Yale will need 10 years to get back to its high water mark — a guess, in which, we’d put almost no faith.
So what do the disappearing endowments actually mean?
Harvard, in Cambridge, Massachusetts, estimates its endowment lost 30 per cent to $25.8 billion in the past year. It remains the wealthiest school in the country. Harvard sold $2.5 billion of bonds in December, in part to improve access to cash.
The debt may raise the school’s interest costs by as much as $550 million over three decades. The school depended on the endowment for about 35 per cent of its revenue during the fiscal year ended June 30.
Harvard has cut staff and athletic programs, and slowed construction of a science centre across the river in the Allston neighbourhood of Boston.
Harvard will “have to reshape and reset to being more like a $24 billion university than a $36 billion university,” President Drew Faust said in May.
Again, alumni: these problems can all go away if you just reach into your pockets and give.
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