Shots in the Dark

12 Responses

• marcel
  6/6/2024 3:16 pm

  Not looking like the best choice of a title today.

• Harry Lewis
  6/8/2024 7:48 pm

  NYT Review of Degrees of Inequality.

• Benjamin N. Levy '69
  6/9/2024 3:57 pm

  A very important article in the Crimson about the state of academics vs extra-curriculars at Harvard: http://www.thecrimson.com/article/2014/5/29/the-extra-curriculum-academics/.

• Harry Lewis
  6/9/2024 5:28 pm

  I always love how even students think this is a new phenomenon. Woodrow Wilson, while he was president of Princeton, said, “So far as the colleges go, the sideshows are swallowing up the circus.” Lowell bemoaned “the exaggerated importance of the secondary interests as compared with the primary object of education.” This phenomenon came with the increase in the size of colleges, the rise of the research faculty, and students figuring out that the colleges were not being run for them, so they drifted toward de-anonymizing, social, bonding and uniting activities.

  Too often the faculty think the answer is to limit extracurricular activities, as though student attention were a fluid which, finding one outlet dammed up, would flow into the remaining one, academic study. Given the origin of the problem, it would make more sense to make teaching better, more interactive, more social.

  By the way, the one quotation from me was pulled from a long interview, which by and large was not negative about extracurriculars, only about their number and, to some extent, the particular nature of some of them (I prefer the ones that develop talents). I wonder if the faculty who complain about student extracurriculars realize that when they admire NYT writers such as David Sanger and, in their day, Linda Greenhouse and Tony Lewis, they are reaping the fruits of extraordinary levels of extracurricular commitment those Harvard alums made while they were undergraduates.

• Anonymous
  6/11/2024 1:03 pm

  Hoping Sam Spektor will review for us Jane Mendillo’s career and performance at HMC so we know how or if she was good

• mad at-er
  6/11/2024 3:00 pm

  @Anonymous 1:03pm: it depends - do we know what Mendillo thought about Reinhart and Rogoff’s book?

• Sam Spektor
  6/11/2024 4:41 pm

  With regard to Ms. Mendillo, she was dealt a poor hand and really did make the best of it. Brava.

  In the long run, the HMC portfolio will probably not do much better than some broad based index funds. Here is why.

  1. The payout model of The Univesity is broken and doesn’t allow for a really long term perspective for the portfolio. This really long term perspective should be the aim of Harvard (and most other university endowments). This lack of perspective is one of the reasons (I think the main reason) why the endowment had so many problems in late 2008 and early 2009, just when some of the best opportunities in many years were available. Unless this payout model is changed, this will happen again and again.

  This is the key, the key key, to having really good performance in the long run. However, it appears that The Corporation hasn’t learned from its mistakes. My friends there can’t seem to get it through their heads that they don’t run their businesses on a short term basis and they shouldn’t run Harvard (i.e. the payout) on a short term basis. Perhaps the two new Corporation members, both of whom have extensive real world experience, will be able to change things. If not, be assured, that the university will have another meltdown regarding revenues and it will probably be worse than the one a mere five years ago.

  There are a number of ways to change the system so that long term returns will be enhanced. No one seems to be willing to listen because it requres thinking outside the box. This is anathema to Harvard which still wants to have good relative performance compared to Yale or relative performance to benchmarks that are meaningless. Relative performance is a terrible concept for a university to accept, but it pervades Harvard and HMC.

  2. Because of the way the payout is set, long term value (or growth) can’t be the vast majority, 90% or more, of the portfolio. This is because of liqudity concerns. Over the long term, Illiquid investments, whether value or growth, will do better than liquid investments.

  3. Harvard has too much of its endowment in entities which are not long term oriented. These entities speculate on pieces of paper rather than invest in value or potential growth. This is strange because at least three of the people on the HMC board think very long term with regard to their businesses.

  4. There are going to be many more pc pressures coming from various sources attached to the university; the process has already started. In a few years, the university will most likely announce that it is cutting back on fossil fuel investments because of… (you can put in many different reasons that it will justify their decision).

  5. Harvard, and other major esearch universities, should be looking at the long term. Harvard is not. This creates many problems.

• Richard Thomas
  6/11/2024 9:44 pm

  Thanks, Sam. I think you’re right on the fossil fuel movement, and am at least hoping so.

  What do you think of this commenter “terryhughes” over at the Crimson? Seems quite perceptive to me, for whatever that’s worth.

  He’s responding to another commenter, but his response is sort of self-standing.

  “You may well be right. Something is seriously wrong at HMC, and portfolio structure seems to be part of it.

  Mendillo likes to say that she inherited the financial problems that hit and humbled Harvard during the financial crisis. There is some truth to that: Summers’ idiotic bet on interest rates went bad and El-Erian’s large illiquid positions and derivatives bets contributed to a cash crunch in the financial crisis. El-Erian also had implemented so-called Armageddon insurance that was partly taken off after he left Harvard (he was not immediately replaced by Mendillo). But there was plenty of time to undo El-Erian’s aggressive positions at Harvard and to further insure against their risks after he left, even after Mendillo arrived.

  Mendillo concentrated on making a big push after the financial crisis to reduce risk and she points out that Harvard’s lousy performance during the financial crisis and the hangover caused Harvard to miss opportunities in the immediate aftermath. Yale’s David Swensen says he wishes that while Harvard was dumping assets he had been able to “pull up a truck” to buy more of them.

  How long can one blame one’s predecessors? Harvard’s endowment returned 11.3% for the year ending June 30, 2013, which The Wall Street Journal pointed out is below the 11.7% average posted by 835 U.S. colleges and universities in the same period, according to the Nacubo-Commonfund Study of Endowments. It also underperformed in its fiscal 2012.

  It is unlikely all of the HMC mess is attributable to Mendillo. James F. Rothenberg ’68, the outgoing treasurer of the University and the chairman of HMC’s board of directors, cited the company’s outperformance of its internally set benchmarks … as a sign of progress. “HMC has consistently outperformed its benchmark over the last five years,” he said.

  Sure, James, whatever you say.

  It’s probably best that with those comments that he’s “outgoing.” Perhaps Mr Rothenberg will now have more time to focus on Capital Group, where he is a senior officer and which is now attempting to remake itself after losing hundreds of billions (yes, that’s “billions,” with a “b”) in assets under management in the past few years.

  One can’t help but wonder what Faust’s role in all this has been (she certainly has not been good for Harvard Business School). What of the hugely destructive “Class of ’69?” And what of the teflon coated, meddling Robert Rubin, who curiously persists (although he, too, is now “outgoing”) despite his central involvement in so many recent catastrophes inside and outside of Harvard? Citigroup, anyone?”

• Sam Spektor
  6/12/2023 3:48 am

  Hi Richard,

  With regard to terryhughes, there are just too many factual mistakes to take him seriously, even though some of the things he says are correct. He published two responses in The Crimson. The other was quoting a Fortune magazine article which made very little sense.

  Again, this all comes down to the payout model. If the current model were changed (and I have been proposing that it be changed for the last dozen years), HMC would have the ability to do very well on a very long term basis. That is important. However, that is not the only benefit. If the payout model were to change, all departments in the university would be able to plan their operations with a long term perspective.

  If there had been a good payout model, the problems of 2008-2009 would either not have happened or the effects would have been minor. Seems to me as if it is a win win situation. Why then, does The Corporation persist in having a payout model that doesn’t work and that makes it so much harder for HMC to do really well? Perhaps it is because The Corporation can’t think outside the box. Perhaps it is because the faculty would have to forego some money now to get more in the future and the faculty is unwilling to do it.

  What is it going to take in order to change things… the next meltdown? If The University continues to spend as it is doing (above what it should be spending) and continues to have the payout model it does, as I said on this blog in 2006 (well before the debacle of 2008-2009), the outcome will not be good. Warren may not agree, but the numbers tell the story. The campaign money can cover up the problem for a bit, but eventually there will be another meltdown and then, once again, it is “game over”

  I see that you’re still hoping for divestment of fossil fuel securities. I think you’ll get your wish because, foolishly, The Corporation will eventually cave.

  Have you and your co-signers sold all of your securities that are tied up with fossil fuels or is that too much to ask of those faculty who protest so much?

  Best,

  Sam

• Richard Thomas
  6/12/2023 9:12 am

  For me that would mean TIAA-CREF, which is indeed under discussion.

  How would your payout model work, Sam? I know you’ve done this before, but one more time if that’s easy.

• Sam Spektor
  6/12/2023 10:12 am

  Richard,

  You can cash out of TIAA-CREF right now and put the money in Treasuries. Why the delay? You don’t want your money contributing to global warming, do you? I would urge you to do the right thing, today. Press that little button Richard and make the switch. And get all the other signers to do the same. What they recommend that The University do, they should do as well. As Grandma Ruthie would say, “no, tell me why no.”

  Model. Pick a number for the payout today. Make sure the total payout today is within comfortable parameters, perhaps 3 1/2 percent of the total endowment, maybe 3. Tell every department that no matter what happens, over the next 20 years, that total payout will be readjusted based on an index relative to an inflation number every year.

  This gives HMC the ability to invest long term in situations that have very good returns. It can gauge the amount of liquidity it needs at any given time. It doesn’t have to think about short term periods of, let’s say, five years. It enables the departments to know exactly how much they will be receiving so the departments can plan long term. No, tell me why no.

• Richard Thomas
  6/12/2023 10:34 am

  My department could certainly live with that. Wages and salaries have risen well under 3.5% for staff and faculty since 2008. Same for graduate fellowships. Fringe costs probably more though?

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