
How Harvard University Almost Destroyed Itself - robg
http://business.theatlantic.com/2009/05/how_harvard_university_almost_destroyed_itself.php
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stanleydrew
It doesn't seem like Harvard was anywhere close to destroying itself. With
enough in the bank to fund operations at current levels for another 20 years
this headline seems very sensationalistic.

~~~
robg
It's not that simple - see the original:

[http://www.bostonmagazine.com/scripts/print/article.php?asse...](http://www.bostonmagazine.com/scripts/print/article.php?asset_idx=251494)

Then consider this quote, which to Harvardites is as bad as it could possibly
get:

"We are in trouble," says one Crimson professor. In the aftermath of deep and
damaging cuts, "there is a real chance that Harvard will no longer be
considered the best there is."

That may not mean "destroy" in the bankruptcy/going out of business sense, but
in terms of forever altering their identity.

The numbers are troubling:

$400 million/year deficit in FAS

$100 million/year in debt financing

$100 million/year in Alston maintenance

Sure, $600 million/year into $15 billion isn't a huge deal. What is, however,
is how they've had to leverage that reserve to pay existing and new
obligations - interest rates, bonds they've offered, etc. "In February, HMC,
suddenly not looking so smart anymore, started laying off about a quarter of
its staff."

This is a real money crunch that has a real trickle-down effect. "And by the
2011 fiscal year, the university would be cutting FAS's annual infusion of
endowment cash by $125 million."

That's scholarships, classes, research facilities, new faculty hires - you
name it. When the "best" university in the world is cutting drastically, on
it's guiding mission, I'd say folks are legitimately worried about the
identity forever changing.

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patio11
I've said it before and I'll it again:

Harvard is a hedge fund whose PR arm has a ~$800 million operating budget to
make sure they don't lose their tax exemption, which is the source of most of
their competitive advantage over other hedge funds.

I hear the PR arm operates a school or something.

~~~
ryanwaggoner
You might want to stop saying it, as it really doesn't make much sense, for
three reasons:

1\. Harvard is hardly alone in having an endowment, nor are they alone in
having an internal investment department that funds future operations. By this
logic, any organization that operates an investment arm for internal use is an
investment fund.

2\. Hedge funds exist (ostensibly anyway) to provide a return to their
investors. Harvard does not exist to provide a financial return to its
investors. Its endowment exists to fund the future operations of the school,
not give the donors a good return on their donations.

3\. Harvard is known for their educational merits, not their endowment.

~~~
patio11
Harvard is of a quality virtually unique due to the size of their endowment,
their degree of reliance on it, and the way it is managed (for Aggressive
Growth). At some point you have to ask if the tail is wagging the dog.

You could fit most universities' endowments in the interest payments Harvard
gets from the fixed income allocation of their endowment alone. Don't take my
word for that: look at the list of universities in the US with gigantic
endowments:

[http://en.wikipedia.org/wiki/List_of_U.S._colleges_and_unive...](http://en.wikipedia.org/wiki/List_of_U.S._colleges_and_universities_by_endowment)

 _Harvard does not exist to provide a financial return to its investors._

It really does -- Harvard is the sole investor in Harvard, and Harvard went
for aggressive growth and a 15% CAGR. (The article talks about a multi-billion
interest rate swap which had a speculative payoff in the billions.) The
typical behavior of endowments is "We're going to husband this carefully and
spend about 4 or 5% a year to supplement our other sources of income."

 _Harvard is known for their educational merits, not their endowment._

I didn't say their PR arm was ineffective.

~~~
ryanwaggoner
Harvard is not the sole investor in Harvard...the endowment is largely the
result of donations by wealthy alumni, none of whom will be getting a return
on that investment.

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bokonist
I'd really like someone to investigate how much money the AIG bailout saved
Harvard. AIG was in the credit default swap business and Harvard invested
heavily in that area. There were a lot of interconnections between Wall St,
AIG, Harvard, and the government (Marty Feldstein, Larry Summers, Robert
Rubin, etc). Somebody ought to look into this.

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flipper
I presume the $800 billion in new buildings was really $800 million. Still a
mind-bogglingly large amount for a single university to spend.

~~~
rudyfink
Buildings are surprisingly expensive. ~50-75$ million (perhaps even more these
days) gets you a pretty basic academic building (like a dorm). Fancy buildings
with expensive contents like libraries and labs are substantially spendier.

~~~
patio11
I don't doubt your numbers. However, a dorm is an apartment building with
students living it and maybe a room with some communal computers. You can walk
two blocks from almost any $75 million dorm in the country and find an
apartment building with students living in it. That apartment building didn't
cost $75 million, or indeed anywhere close.

Sometimes excess is just excess.

 _As she starts her freshman year at the University of Maryland, Alyssa Evans
will not be roughing it: She'll have a furnished single room with a double
bed, private bathroom, cable and high-speed Internet. Her four-person suite
has a full kitchen, a washer and dryer, a dining room table and black leather
couches in the living room.

Her high-rise building has a game room with video games, poker and pool tables
and flat-screen TVs, a rooftop deck, a pool and -- losing track here -- okay,
and a big fitness center.

And tanning beds._

<http://www.msnbc.msn.com/id/14364465/>

~~~
jrockway
I am not sure that that's excessive. When I was in college, I shared a tiny
room with a roommate. It was constantly loud, and I got nothing done. I ended
up dropping out.

Since finding a real place to live (and a real job, of course), I've written a
book and have over 100 open source projects in my github. Having a quiet,
comfortable place to work probably contributed to that.

Giving people a reasonable place to live and study is not excess -- it should
be mandatory. (Also, this stuff isn't that expensive. I live in a high-rise in
downtown Chicago, not a cheap market, and facilities like this would not be
very expensive when split between 4 people. It's not all that expensive for
_one_ person...)

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mattmcknight
"Harvard will still be the world's greatest research university." I wasn't
aware that it was the world's greatest.

~~~
ramchip
The beginning outright says "the world's greatest university", which also made
me cringe a little. If at least the author gave some kind of metric...

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asciilifeform
Good riddance. How I despise prestige farms.

