To be sure, the highly-talented-- and highly- incentivized- MBAs at HMC did exceedingly well for Harvard during the early years of the new millennium. From 2000 to 2008, they more than quadrupled the notional value of Harvard's wealth through a strategy that involved shifting the lion's share of Harvard's money from American stocks, bonds and cash to to highly esoteric investment which were not only illiquid but whose imputed value often could not be easily determined by outside parties. So, by the time the bubble burst in the fall of 2008, less than a fifth of Harvard's endowment fund was invested in exchange-listed stocks and bonds. Where was the rest of Harvard's money? Nearly 28% of Harvard Endowment fund was in what the fund manager's called "real assets," a category comprised of timber forest and arable land in remote areas, commercial real estate participators, and huge stockpiles of oil and other physical commodities. Such "real assets" plunged in value, if they could be sold, much more severely than the stock market averages. Oil, for example, one of the fund's largest investment, lost about t two-thirds of its value. Another huge chunk of the endowment was in private equity placements and hedge funds which imposed restrictions on withdrawals. In the case of so-called "gated" hedge funds, some of which suffered enormous losses, Harvard could only extract its investment by selling its participation at a steep discount to a "secondary" hedge fund. Another 11 percent of Harvard's money had been sunk in volatile emerging markets. Here the investments took a double hit: First, the local stock markets collapsed in most of these countries, with, for example, Russian stocks, losing 80%, of their value. Second, on top of these losses. the local currencies lost much of their value against the dollar, with the Brazilian Real, for example losing 40% of its value. Given the true cost of getting its money out of this financial exotica, my knowledgeable source finds the claim by Harvard's money managers that the fund only lost 22 percent not only "purely pollyannaish" but self-serving (they got increased bonuses for 2008). But while Harvard's money managers may chose to look through rose color glasses at the value of their portfolio , Harvard University, which relies on the interest from its endowment fund for one-third its budget, needs to be more realistic. As its President, Drew Faust, noted in letter to the Harvard faculty, "We need to be prepared to absorb unprecedented endowment losses and plan for a period of greater financial constrain,"
The collateral damage goes far beyond the ivy-covered walls of Harvard. Money managers at other non-profit institutions, no doubt inspired by the dazzling success of the Harvard Management Corporation in rapidly multiplying the notional value of its endowment fund adopted similar strategies, including plunging their funds into the murky get-rich-fast universe of illiquid investments. Consider, for example, the adventures of Calpers, the giant pension fund of the California Public Employees' Retirement System, I which heavily invested in the same sort of "real assets" as Harvard. Leveraging its own funds, It bought so much undeveloped real acreage, that by 2008 it became the largest private land owner in America, and as the real estate bubble expanded, it marked up the notional value of its portfolio accordingly. Then came the subprime debacle, and the real estate bubble imploded, leaving Calpers with unsalable land and, because of its borrowed funds, a 103% loss. Together with other losses in hedge fund and conventional investments, Calpers found that it had lost nearly 40% of the value of its entire pension fund. In Calpers's case, it had little choice other than to realistically report its enormous losses since it had pension obligations that now might require raising money from local governments in California. Other nonprofit funds with more leeway, such as Harvard, have yet to fully come to grips with the problematic value of their illiquid investments.
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Ivy grows on static surfaces and the world is in continuous motion, subject to continuous change. Why would one want to subject their mind to such a place?
The rep is greater than the fact. Dubya is a prime example.
:-)
So it goes to show you, "It all comes back..!"
As Paul Butterfiel
People were hurt by the drop in commodity prices in 1928, sometime before the crash in 1929.
The curriculum of Harvard Business School is the same as the somewhat lesser knowns.
It could be described as maximize profits in the shortest term possible.
All those schools teach you very well how to increase your money according to the latest and most innovative financial business schemes out there.
Emerging markets, hedge funds and volatile commoditie
Ouch. That hurts.
It is more than ironic that the business school success in teaching the smartest and richest among us the best means to achieve their financial salvation is the exact cause of the apparent demise of same institutio
This result for HBS is, in and of itself, proof of the wrong-head
Harvard Business School bet its future academic advances on the deregulate
We can expect no better from Obama.
Nor from Harvard.
So, if the HBS business model is friggin toast, then what are they going to teach in the future?
Better call in some high-paid professors
You know, the ones that haven't moved on to Obama.
I am a student at HBS, and I have yet to be taught to maximize short-term profitabil
Perhaps you should sit in on a class-- we "wrong headed and immoral" future business leaders would love to open your eyes to the truth of our education, which has, in many, many more cases than the opposite, created wealth, opportunit
I happen to have seen some of what the HBS teaches and I am sure there will be some highly enjoyable analysis going on over there, right now. All of which will be lost to the masses, of course, because they can not afford to pay a quarter million dollars for an MBA.
:-)
I made broad comments about the business model at HBS because HBS is the subject of Mr. Epstein's post.
I have known many graduates of allS's.
I openly disparage the business school curriculum
All of them.
Why is it that you believe the HBS students can open my eyes, and not the other way around. Are you all any different than the previous generation
You can educate me right here. Hopefully, vice versa.
The claim that your education creates wealth, opportunit
The best and brightest who run the endowment fund investment
As a student, you ought to hold them responsibl
The list of investment
'financial exotica', not my term.
Bring my comment to your monetary economics teacher for a reality check and ask for an opportunit
I will discuss an aspect of monetarism that spans Milton Friedman, Ludvig VonMises and the Chicago School economists that advised FDR on the Chicao Plan, all with a view to addressing the horrific end game that the BS's have wrought upon the population
That is my challenge to you, nanie.
You can sit in on my class.
Respectful
Case in long overdue point, the words talented and Harvard simply don't go together in the same sentence. And thus, it appears that in some way the workings of karma are beginning to visit themselves upon the world's most overrated learning institutio