Forbes on Harvard’s Endowment “Meltdown”
Posted on February 26th, 2009 in Uncategorized | 2 Comments »
It’s the cover story—and it’s not pretty.
Desperate for cash, Harvard Management went to outside money managers begging for a return of money it had expected to keep parked away for a long time. It tried to sell off illiquid stakes in private equity partnerships but couldn’t get a decent price. It unloaded two-thirds of a $2.9 billion stock portfolio into a falling market. And now, in the last phase of the cash-raising panic, the university is borrowing money, much like a homeowner who takes out a second mortgage in order to pay off credit card bills. Since December Harvard has raised $2.5 billion by selling IOUs in the bond market. Roughly a third of these Harvard bonds are tax exempt and carry interest rates of 3.2% to 5.8%. The rest are taxable, with rates of 5% to 6.5%.
It doesn’t feel good to be borrowing at 6% while holding assets with negative returns….
And more explicitly than other articles, Forbes suggests that Larry Summers cost the university billions of dollars.
(And no, that’s not a reference to his severance package.)
The bad bet on interest rates-a swap in which Harvard was paying a high fixed interest rate and collecting a low short-term rate-goes back to a mandate from former Harvard president Lawrence Summers.
The bottom line: Harvard is in financial crisis.
2 Responses
2/26/2009 3:37 pm
Uh oh, I may not get a raise this year from the sound of it.
(Nothing much new here is there? Except the bit about the mandate from LS)
2/27/2009 2:01 pm
Big stretch to keep blaming LHS for all of this. The real story is the prolonged interregnum, insouciant, inattentive, and indecisive leadership during a critical period. The Corporation and the current administration are responsible for that.