Harvard has a very serious mission challenge. Is its mission to make money or to support research and teaching?
 

Rich, forgive me if I am missing something obvious, but what is the point of these comparisons on return rates? It's risky for a manager to go for the highest return rate, and it's easier to get a high return on a smaller portfolio size (because you just can't buy enough of some smaller assets). The bottom line is not about single investments or single years. It is that Harvard (and Yale) have for years shown that they can, over the long run, manage their endowments very well.

The interesting question is not whether UVA or Yale got a return that is a point higher this year, or whether someone should be scolded for a hedge fund investment that didn't work out, but whether and how all that money is being spent, and how Harvard plans to market its campaign when it has so much.

There is certainly a connection between that last issue and the return, but it's not the obvious one: big donors actually like to give money to places that multiply the value of their money. They hate putting in money just to cover bad portfolio management in the past.
 

Sigh. The obvious point that is missing from the Times piece is that a 22.4% return, while respectable, is not overwhelming because that does not include fees paid to outside managers, and the fund's own overhead. Outside hedge fund managers typically charge "2 and 20" -- 2% of assets, and 20% of profit, i.e. outperformance of the index.

Beating the S&P; Index by 1.8%, in other words, means they actually would have done better invested in an index fund and not have to pay such high fees.

Plus, you have to wonder how much they got hit in the recent market volatility. These returns were reported before the recent crash.
 

Once again, there is information posted that is incorrect. Why is so difficult to get the correct information?
The headline in the Times says the endowment was up by 23%. The first sentence in the article says 22.4%, a difference of just a few hundred million (to paraphrase Senator Dirkson, a few hundred million here, a few hundred million there and pretty soon you're talking about real money). If you look at the press release, it says 23%.
The Times gets it wrong and everyone who reads the Times and publishes (without a tight deadline) based on The Times, gets it wrong. Is this good journalism? It's interesting that the WSJ reported it correctly, but then again, Gerry Fabricant of the Times, is not Craig Karmin of the WSJ.
Then we have anon 4:27, Mr. or Ms. "Sigh." That person said, "Sigh. The obvious point that is missing from the Times piece is that a 22.4% return, while respectable, is not overwhelming because that does not include fees paid to outside managers, and the fund's own overhead.'
Mr. or Ms. Sigh... where did you get that piece of information? Did you make it up? Please correct me if I'm wrong, but I thought the figure of 23% this year and "x" percent in other years, was a net figure. Did I miss something? Then the person says: “Beating the S&P; Index by 1.8%, in other words, means they actually would have done better in an index fund and not have to pay such high fees. Really!? Not only is that incorrect, but it is also stated with hindsight, which is always perfect.
The fact is, Mohamed El- Erian did an incredible job this year in performing so superbly. He had a very difficult task coming into the position, and the fact that he was able to make the transition so well, and position the endowment so well in a very difficult market, is something to be highly applauded, not denigrated in any way. What he did is simply astounding.
An important question is how to spend it. There is no question in my mind, having seen what the various faculties have wanted in the past, that there will be a demand for a huge increase in the payout for fiscal 2009. There have been two recent very ill- advised moves in that direction, when, under President Rudinstine, the endowment payout in fiscal 2000 and fiscal 2002 was in excess of 20%.
Those increases in payouts set a very high bar and the ramifications of those payouts will work to the detriment of future generations of Harvard faculty and students (those who have recently decried the current FAS projected deficits might be wise to remember what really caused them). There was not even a murmur of questioning about this ill conceived idea. Everyone was fat, dumb and happy, and the word spendthrift was not in anyone’s vocabulary.
Hopefully, The Corporation will not acquiesce to those demands this time around and will use prudence as well as long term perspective. Too many believe that Harvard has an ungodly amount of money; this is a false assumption. It does not have as much as will be needed in the next 25 or 50 years, if the money it has today is spent unwisely. Unwisely encompasses not only money spent foolishly on fads or fashions (or on buying faculty peace), but on payouts from the endowment in excess of what is prudent. Those long periods of time, which are crucial for a great university in terms of ongoing scholarly endeavors, seem to be lost on those who think only in terms of two words… “me” and “today.” There are many on the faculty (particularly the FAS faculty) who think in precisely that way. Harvard will survive very well of course, but at what price? Every dollar that is spent, unnecessarily, to “placate certain faculty members”, “to keep the peace”, “to have them behind you at the Faculty Meeting”, is a dollar that could be spent on reinvestment in the endowment, something that will benefit those who will really need it in the future.
I’ve never understood how an institution that has needs stretching out over the next ten, twenty or fifty years and which has a large endowment that can allow for the very long term compounding of it (because of the astuteness of the managers of the fund, the long historical record that shows that non fixed income securities and other asset classes will more than keep pace with inflation and because of the fact that no one at the university has to think about investors worrying about what the earnings (or returns) will be in the next quarter or the next year or five or more years from now), can be so fixated on a certain payout from the endowment that gives no real recognition of the very long term. Why doesn’t the University say at this point: we have 34.9 billion in the endowment; you, the Deans, will know that we believe that over the very long term, we expect to earn “x” percent; next year we will pay out “y” percent of 34.9 billion and each year, we will increase that amount by “z” percent for inflation (up to “a” percent), regardless of how the endowment does in any particularly year or three year period or longer period. That is to say, “we believe that the very long term will provide us with a good return and we want you, the university, to plan accordingly and not have to worry about what is going to happen over a much shorter period of time. This would enable the Deans to plan for the long term, for such things as faculty growth, growth in student population, new buildings and all the other ongoing expenses both operational and capital that a large institution needs. Wouldn’t that make more sense than the short term perspective that is currently in place with regard to income (i.e. endowment payout) and expense?
 

One other correction: the endowment is now worth $34.9 million, not $40 billion as Richard has suggested. The similar figure ($41 million) mentioned in both the WSJ and NYT today includes all assets under management by HMC which includes, but is not limited to the endowment.
 

The only problem with such staggeting endowment figures is that Harvard runs the risk of becoming, or remaining, a place that is not just about, or even primarily about, scholarship, but rather a place that is about fund raising and creating job for more and more managers and administrators, who are increasingly detached from the core functions of the University, even as they increasingly have more power over University affairs.

It is a very serious challenge indeed, bad and worsening in all of Higher Education, but particularly acute at Harvard. It is worse because these managers make the problem invisible to the Corporation and Overseers.
 

Good post from Sam Spektor clearing up the financial realities, and it is obvious the year went well, equally obvious we should wonder what will be done with it. But beware of historical revisionism via the familiar FAS faculty bashing, Sam. I'm thinking of what you say here:

' . . . those who think only in terms of two words… “me” and “today.” There are many on the faculty (particularly the FAS faculty) who think in precisely that way. Harvard will survive very well of course, but at what price? Every dollar that is spent, unnecessarily, to “placate certain faculty members”, “to keep the peace”, “to have them behind you at the Faculty Meeting”, is a dollar that could be spent on reinvestment in the endowment, something that will benefit those who will really need it in the future.'

I rthink the rewarding of such individuals happened, but it was via Mass Hall as much as University Hall, and none of the contrarians, rabble-rousers, and regicides to my knowledge was fulminating about anything financial, rather about directions, and other matters with which we disagreed.

The one exception was the Harvard College Library (i.e. Widener et al.), about which a number of us clamoured for appropriate funding in 2001-6. But it wasn't a high priority for Mass Hall, and therefore neither for University Hall, and in fact got zero-growth unrestricted budget increases for a number of years, with the result that the rich collecting that has gone on for c. 150 years and has led to the supremacy of Harvard's libraries has been diminished. But we have been unsuccessful, so far, in getting substantial turn-around on that. I would hope the Corporation might actually target units, particularly underendowed ones such as the library (which is therefore a huge drain on FAS unrestricted funds) for substantial increases. And I say that because the present success of such parts of the University precisely have to do with the University's future strength, to which S. rightly looks.
 

For all the problems Harvard has had, the performance of the fund managers hasn't been one of them. The important question is how the money gets spent, and has gotten spent in the recent past. Not sure what SS means by considering what caused the deficits - faculties don't write checks and borrow money, only deans and the presidents who appoint them do that.
 

To Sam Spektor -- I'm actually a fan of El Erian, and agree he's done a good job. Just pointing out that matching the S&P; is no great shakes. But a lot have done worse.

Returns are usually listed gross of fees. The Times article doesn't say otherwise, so I'm assuming they are gross.

Not sure why he calls me "sigh" when I'm clearly identified.

No comment on how Harvard spends or should spend its money. I'll leave that to others.
 

I'm puzzled by Mr. Spektor's comment that

"There have been two recent very ill- advised moves in that direction, when, under President Rudinstine, the endowment payout in fiscal 2000 and fiscal 2002 was in excess of 20%"

Is he claiming that in each of those two years one-fifth of the endowment was paid out as income to the various faculties?

That can't be right. Perhaps he's claiming that, in each of those two years, the payout rate on endowment was increased by one-fifth

In that case, the alarms he's sounding are way overblown. Harvard has had one of the most miserly payout rates of any institution. So if, e.g., it started with a 3.5% payout rate before Rudenstine, even two 20% increases still keep it below 6%, which seems pretty safe, given the average increase in endowment over each of the last fifteen years.

But even this figure is overly generous. I've just stepped down from oversight of my Department's endowed funds, but as far as I can remember, we are getting somewhere under 5% on them.
 

My apologies to Professor Goldfarb. He is correct that the sentence referred to was missing the word “increases” and should have read “the increases in endowment payout…” Clearly, from the next sentence, that was my point.

Unfortunately, I don’t agree with Professor Goldfarb’s comment “ In that case, the alarms he’s sounding are way overblown. Harvard has one of the most miserly payout rates of any institution.” At the end of this reply, I ask the question “payout rate of what.”

Paradoxically, Harvard may have one of the most miserly rates of any institution (I don’t know if that is the case, but let’s assume it is) because it has so large an endowment. Let me explain. Another major research university which does not have an endowment which covers as high a percentage of yearly operating expenses (as does Harvard’s), may be forced to pay out a greater percentage of its endowment to cover such expenses. I am aware of a number of universities that are in this situation. In and of itself, the payout rate says nothing about miserliness. A low payout ratio does not necessarily equate to being miserly, nor does a high payout ratio indicate selfless generosity. It has to be put into context of the overall financial resources of the institution. For example, there are a number of Ivy League schools which have small endowments relative to the amount of financial aid that they need to pay out in order to attract the students they wish to have (Harvard doesn’t have much of a problem with “financial aid coverage” on the undergraduate level). Relative to Harvard, these schools will probably have to use a higher percentage of their endowment (both restricted and unrestricted) to cover financial aid (and will, of course, have to use a significant amount of unrestricted annual giving as well) to generate enough funds to cover the cost. Therefore, all other things being equal, the payout ratio may be significantly higher than Harvard’s, not because the schools are more generous, but because necessity dictates it.

There are other (and more important) issues that bear on the points that Professor Goldfarb made. First, payouts have to be looked at in the context of long term returns on the endowment relative to inflation. Let’s assume, for example, that from this point, Harvard can expect an average annual compound return over the next fifteen years of 9% (I believe I’m being overly generous). Let’s assume that inflation, as it applies to research universities, goes up by 3 ½% a year (that might be a bit low going forward). Let’s assume that this happens in lockstep. If Harvard were to pay out 5% of its endowment, it would increase its real purchasing power over time ( but just barely). If it paid out 6%, each Corporation member would be condemned to read David Copperfield over and over. Even assuming a return of 9% and a payout of 5%, there is almost no margin of safety if the results, either in the return or in inflation, are different from what was expected. It would not be wise to allow Harvard to take chances such as these.

The second issue relates to how the payout is determined and its impact on the budget of the University. As I said in my original post, I believe the budgeting system of the University is flawed. I don’t see how a research university, of the size and scope of Harvard, can not know how much money will be allocated from the endowment five years from now (to say nothing of longer periods). How can deans and department chairs (and many others) make rational long term planning decisions if they don’t know what their funding will be? Because of the nature of a university, rational long term planning is critical. How can this be done when there is a payout rate that is simply an artificially constructed number, a number that has no real reasoning behind it.

To further answer the payout question, one should ask, “payout of what?” Payout of 5% of the average of the endowment for the last two years? Payout of 5% of the last three, with an assigned weight of 45%, 35%, and 20% per year (and are we giving more weight to the current year or the third year back?) We can devise many payout ratios, and all are totally artificial and do not allow for proper planning. These ratios may placate some alumni who would be horrified if the endowment decreased for a number of years because payments out were greater than the returns; placating some alumni seems a very high price to pay. As an aside Professor Goldfarb, how a school calculates the denominator can cause huge disparities in “payout ratios” among institutions.

If the University has some idea of what it can hope to achieve, long term, with regard to endowment returns (I believe it does or I should say, I hope it does), then it should be willing to let the schools know what they can expect. This would solve the payout ratio problem and would enable proper long term planning.

I hope this is of some help.
 

Professor Thomas… I didn’t mean to imply that “the contrarians, rabble-rousers, and regicides” .. “was fulminating about anything financial” and I’m sorry if you inferred that from my comments.

In fact, I was thinking primarily of prior times (the good old 90s) when Mass Hall made a number of handouts to professors based on their (the professors) ability to shout very loudly, to curry favor with those who controlled the purse, or to threaten to leave; in general, for all manner of poorly thought out reasons. Some of my friends at the university have told me of these problems and it is generally well known (perhaps I’m wrong on this point, but I think you’ve alluded to it in the past). In fact, as I understand it, names were given out for the rules that were finally instituted. There was the “so and so rule” whereby certain conflicts of interest between professors and friends who were real estate agents, were not permitted. There were many other “named rules”, all following some egregious behavior.

This would all be very funny if it weren’t so sad. If you look at it the way I do, each dollar that was spent on these people was a dollar that could have been spent on other necessary things i.e. the library. That was the gist of my point.

You do bring up another point that fits well with what I wrote last evening and my reply, a short time ago, to Professor Goldfarb. You said the library “in fact got zero-growth unrestricted budget increases for a number of years, with the result that the rich collecting that has gone on for c. 150 years and has led to the supremacy of Harvard's libraries has been diminished.”

Perhaps this would not have happened if there were no 20% plus increases in endowment payout during fiscal 2000 and fiscal 2002. The fact is, those ill advised huge increases in payout meant that for the next several years the increases in payouts were going to be small; there was “catch up” to do and it wasn’t going to be on the up side. Of course, perhaps the library didn’t get its fair share because there were more important things to spend money on … perhaps it was the millions of dollars paid out for architectural fees and other planning costs for costly art museum projects which were the whimsical thoughts of someone’s imagination. Perhaps it was additional “parting payments” for someone who had been close to those controlling the money.

Perhaps it was none of these things. Perhaps, it is a lack of a rational system to address the long term budget planning process . I’ve covered this in my two prior replies and so will not repeat it again. It might be much better if, for example, the library might have some (not total, but some) information as to what it was going to receive five years from now, ten years from now. Not only would it be able to better set priorities, but it would be in a much better position to argue intelligently for additional funding. The way the endowment payout works, this is unfortunately not going to happen.

If this doesn’t change, there will be many more dislocations in the future, not only with the library, but with other aspects which make the University the great one that it is. What a shame that this might happen.
 

To Think Twice:
You said: "Returns are usually listed gross of fees. The Times article doesn't say otherwise, so I'm assuming they are gross."

Sorry to differ with you, but with mutual funds and hedge funds, returns are almost always stated net of fees. When you read that xyz mutual fund was up "x" % last year, that was after fees. When you read that abc hedge fund was up 50% last year (weren't all hedge funds up at least 50% last year and won't they all continue to be up 50% each year for the next ten?), that is after 2 and 20 or 2 and 30 or whatever number is taken out to lower your return. Yes, some hedge funds do like to give a gross and net number, but what you almost always read is net, and what partners in the funds get is net.

No one can "eat" gross returns.

Hope this clears it up.
 

Sam:

Glad you are back!

Got a question for you since you really understand this stuff-

is it harder for a fund the size of H to return 22.4% (or what ever) than say Yale's endowment return since H's fund is so much larger? If so, what are the reasons/factors/issues that play into asset allocation and holdings that effect results? Or is it all alpha as many folks here seem to imply?

Anyway, looks like the respondents to this blog can more than benefit from your insight specifically re fund management.

Again, glad you are back and lending some clarity to the discussion.
 

Sam Spektor -- at some point we'll have to agree to disagree, but here you are flat wrong: institutional funds (in which Harvard and other instritutions invest) are always listed gross of fees, because fees are negotiated and therefore differ among clients, unlike retail mutual funds. Harvard may have reported its own endowment's performance net of fees, but it is not clear in the Times story they did so.

In any case, this is a ridiculous argument because a 6 month return tells you nothing, good or bad, about a fund manager.
 

To anon 1:07
I’ll assume your post was not a put on, even though the tone sounds as if it could be.
Fund size is always important. Most of the time, not always, size works against the investor (as Buffett says, he’s got a much bigger problem now than he did 15, 25 or 40 years ago). It’s much much easier for an individual investor to do better than institutional investors in general, if he/she knows what they are doing. As an example, it’s much easier to buy small amounts of equities than to buy large amounts and it is certainly easier to correct one’s mistakes.

From what I know, the comparison between Harvard and Yale is not a question of size. It is the fact that Swenson started doing certain things with certain people in certain asset classes, before Harvard started. An earlier start, might have enabled Yale to gain access to certain managers who were then unavailable to Harvard. However, that’s only a guess.

I have no idea what the reasons, factors, issues that play into asset allocation and holdings at Harvard.

Your question, “or is it all alpha as many folks here seem to imply” makes no sense. To an investor, at least a rational one who has others managing his money, everything is alpha. If someone who manages your money can’t add value, why would you give that person your money… why wouldn’t you just use index funds.
 

To Sam Spektor:
Thanks for your helpful expanations. With respect to the "so and so rules," I hope we've now put a "Shleifer rule" on place. That was indeed one financial matter on which there was criticism in the weeks preceding Larry Summers' resignation.
 

Think Twice.

Hey, what do I know; probably not much. I did, however, manage substantial amounts of money for large university endowments. I managed both individual accounts for these institutions and partnerships. Perhaps the world has changed since I stopped managing money professionally, but I can tell you that the only thing Princeton and others got from me was a net number.

One of the largest hedge funds in the Boston area (and in my mind, by far the best run hedge fund in the country) has both institutional partners and individual partners. In the report to partners, the results are reported net.

The fact that the Times story was not clear as to whether Harvard reported its endowment gross or net means absolutely nothing. In my opinion, most writers for the Times business section, including the person who wrote the article, know very little about what really goes on (people like Joe Nocera and Gretchen Morgenson, very smart people who know the business and finance worlds, being the notable exceptions). Let me assure you, that the Harvard performance figure is net. Not very long ago, someone I know very well, used to be responsible for the figure.
 

Sam:

Not a "put on". You are one of the few people who read and contribute to this blog who actually knows about the issues.

Anyway, you answered my question and the answer was what I expected.

Thank you.
 

Anon 4:22.
My mistake and my apologies to you.
 

Sam -- since you know the person who produces the numbers then I'll cede the point. Beating the S&P; by 1.8% is very respectable in H1 of this year when the markets were very strong (its always harder to beat a bull market then a bear). As someone experienced in the markets, you must know that managers frequently hope to evade the question of whether their figures are gross or net to puff up returns, and that the unshophisticated business press misses that. I was attempting to inject a little skepticism, based on my experience.

Fun sparring with you, by the way.
 

Think Twice:
Your skepticism is very well founded. I agree with you 100% when you say:
"you must know that managers frequently hope to evade the question of whether their figures are gross or net to puff up returns, and that the unshophisticated business press misses that. I was attempting to inject a little skepticism, based on my experience." Amen.
As you say so correctly,the unsophisticated business press doesn't have a clue. To back up your thought, here is a small vignette. A Times writer (who shall go unnamed), when speaking to the manager of a university endowment (which shall also go unnamed), did not know what a payout ratio was (and did not know a lot of other basic rudiments). This person was going to be writing an article on university endowments. One can only imagine the mistakes in the article.

One very minor correction on something you said. I know the person who was responsible for producing the number (the net number). That person is no longer responsible for producing it.
I, too, have enjoyed our interchange.
 

Sam Spektor,
Thanks again for the financial explanations.

The handouts didn't end with the 90's as I understand, and I join you in generally deploring them.

Support for a university library depends on understanding and appreciation of what it represents in a great university, from the top down, and that has been absent in the 21st century, and not just at the top.

Good point, Judith.

Brevity due to exhaustion after 14 hrs driving my daughter back to college.
 

Another remark on Harvard's payout: in the Harvard Gazette we read "In the 2007 fiscal year, distributions from the endowment financed almost one-third of Harvard’s operating budget, or over $1.1 billion."

If this is accurate, we are not talking about a 5% payout, as Sam Spektor hypothesizes. It looks in the neighborhood of less than 4%. No reason for us to reread David Copperfield. Plenty of room for increase in purchasing power of the endowment. As has, of course, been the case for at least the past quarter century.

(I am taking the simplistic case of payout being calculated on the basis of current value of endowment. The other bases that Mr. Spektor suggests still make the payout rate 4% or so.)
 

so what?
 

Professor Goldfarb,

With regard to your post, I have three questions. First, what long term rate of return on the endowment do you think The Corporation should assume, if it were to think about a payout of 5% on the basis of the current endowment value? Second, what do you think the reaction might be among your colleagues on the faculty, if The Corporation were to pay out 5% on the current endowment and the endowment, which on 6/30/07 stood at 34.9 billion, was 33.9 on 6/30/08 and 35.2 on 6/30/09 and 31.5 on 6/30/10? Third, what other methods might you propose to measure the payout so as to ensure that the payout is significantly greater than it currently is (however that payout is measured)?
Thank you in advance.
 

The questions Sam Spektor raises seem entirely bogus to me. I have not, nor has anyone else in this forum, insisted on a "5% payout" figure. I have only noticed that the payout is low, possibly under 4%, so that Mr. Spektor's alarms about the payout-rate increases (which led to this far-from lavish outsome) under Rudenstine seemed unjustified.

Meanwhile, let's review the growth of the endowment: 2003: $19.3 billion; 2004, $22.6 billion, 2005: 25.9 billion, 2006, $29.2 billion, 2007: $34.9 billion.

Hard to think that President Rudenstine was giving away the store.
 

Professor Goldfarb,

In my former professional career, when we disagreed with something because we thought it was incorrect, we weren’t allowed to just say we disagreed. We were required to explain why we disagreed, to explain what we would propose instead, and to justify our proposals when asked to defend them. I thought then that this was a rational way to approach a situation where one person differed from another; I still believe this is the best approach.

You said in one of your comments that “Harvard has had one of the most miserly payout rates of any institution” and “in that case, the alarms he’s sounding are way overblown.” I thought we might engage in a dialog as to why you believe these two things to be correct and what your thoughts were as to how the payout could be changed. Let me change my “bogus” questions to just a simple one. What do you believe the proper payout should be and what are the justifications for your belief?

As far as my “bogus” questions, may I point out that I did not say that you or anyone else “insisted on a 5% payout figure.” I merely used that as an example to show how that might affect the endowment over a long period of time (and Mr. Micawber’s dictum would have applicability in my example). However, I would note that 5% is a figure that is often used as a payout ratio for university endowments (although we have to look at how the denominator is calculated) and in fact for foundations in the U.S., 5% is the minimum that has to be paid out each year on the principal of the prior year without triggering some onerous penalties.

Again, I replied to your comments with the thought that readers of this blog and the University community in general could get the benefit of hearing what you, as a prominent FAS faculty member, might think was the proper solution to the question of payouts.

ps I might add that one person’s miserliness might be another person’s prudence
 

Mr. Spektor, your reply to Professor Goldfart is misplaced. The core of his comments is whether the University with the highest endowment in the world is using it appropriately to support scholarly endeavors. Or to put it differently, is it ethical that any of Harvard´s core research and teaching operations are limited due to lack of funds when the University´s endowment has grown at the rates recently reported? Furthermore, is it appropriate that the Development mission of the University seems to have taken a life of its own, with the staffers of that Office becoming the new mandarins who, along with other administrators such as the Office of the Legal Counsel and other lower level staff, de facto rule Harvard? More serious yet, is it reasonable that there appear to be a number of unholy alliances between development and other administrators such that in numerous cases the university now appears to be engaged in raising funds whose primary purpose is to support further administrative growth, or growth of the power of the mandarins.

The essence of Professor Goldfarb´s question is really who shoud govern Harvard and whether Harvard should begin to correct course in the direction of becoming an institution principally devoted to the finest scholarship and teaching. At present one might reasonably wonder whether it is not principally a money making institution, via fundraising and management of the endowment. The real question is which functions are in support of other functions: is fund raising in support of the core mission of the University or are teaching and research masquerades to justify the core mission of making money ´for the benefit of future generations´.

Why should a 5% payout apply to an institution with an endowment that is so out of the league of any other university endowment? Would Harvard´s future be compromised with a payout rate of 20% or would this help a University now struggling to retain its standing amidst the scholarly community to refocus on the central aspects of its mission?

Derek Bok had a perfect understanding of the current priorities for Harvard when he refused to fund raise and focused on improving academics. Alas he was in office too short a time. Harvard´s standing in the rankings continues to slide and too many of the best students in all fields are now choosing to go elsewhere.

Mr. Spektor, you are right that those managing Harvard monies in the past were prudent to keep the future in mind to allow Harvard to remain the best University in the world. The future, and the time to use these monies, is now.
 

My apologies to you. I hadn’t realized that “The core of his (Professor Goldfarb’s) comments is whether the University with the highest endowment in the world is using it appropriately to support scholarly endeavors” and “The essence of Professor Goldfarb´s question is really who shoud govern Harvard.”

I thought we were merely speaking of miserly payout rates and how they should be changed. I simply wanted to engage in a dialog on that basis; clearly I didn’t understand what it was that Professor Goldfarb was saying. I’m not qualified to speak on topics such as appropriate support for scholarly endeavors and who should govern Harvard; that’s way beyond my limited abilities.

As to your comment “you are right that those managing Harvard monies in the past were prudent to keep the future in mind to allow Harvard to remain the best University in the world. The future, and the time to use these monies, is now.”, I’m merely asking what is the appropriate payout level, what is the rationale for doing so and how does this affect the future of those faculty and students who will be at Harvard twenty-five, fifty and a hundred years from now.

Am I incorrect in thinking that neither Professor Goldfarb nor other faculty members have thoughtful views on this subject? I would not have thought so.
 

This debate between the thoughtful Mr. Spektor and the thoughtful Professor Goldfarb misses an obvious point: If Harvard is currently improperly managed --because there are too many politics, because many people who are not qualified have been appointed to key administrative positions and so on and so forth-- throwing more money at it is not going to solve this underlying problem.

The real challenge at Harvard is a challenge of academic leadership. Too many in management positions in the University are neither academics nor leaders, nor do they understand what academic leadership means. It is apparent that President Summers exacerbated that problem --which he did not create--. President Bok did too little to correct this problem --perhaps because he knew he was not going to be in office long enough. Whether President Faust will be able to see the problem and address it is still an open question.

The lack of academic leadership, incidentally, has much to do with the actions and omissions of the faculty.

Increasing the payout rate will not by itself address this issue.
 

So 8:00 am, does the blame or problem lie with the Corporation, Larry Summers, Donella Rapier or somewhre else? What, in your opinion is the motivation for these actions? Will the selection of a new VP of Alum Affairs reflect a difference or change in direction from the president's office? And in your opinion, since I am assuming you are insider, where does the Office of Budget Financial Planning and Inst. Research play into all this - any connection to the budgets and payouts and faculty dissatisfaction? Right track here? If not, please advise.