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.
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:
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.
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.
"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."
From the article:
"According to the university's 2008 financial report, in the next 10 years it must pay various private investors some $11 billion in capital commitments."
I agree with patio11. What kind of "endowment" has investors!? Multi-billion dollar interest rate bets with banks? Borrowing money to bet more?
Of course the managers should try to find a decent return on their endowment, but at some point the tail has started wagging the dog here. In a previous article it was mentioned that some of the money managers were being paid bonuses of tens of millions a year; probably a hundred times the highest-paid professor. How you can have crap like that going on and still pretend it's all about the education is beyond me.
Unless I'm completely mistaken, the capital commitments refers to investments the Harvard endowment is making in other funds, not investments being made in its own fund. For example, when a VC firm raises a new fund, they don't take delivery of the entire amount of the fund, they just get commitments that the funds will be available from investors (like Harvard, in this case) when needed. It's not unreasonable for an endowment fund with tens of billions of dollars to commit roughly $1.1 billion per year to various investments over the coming decade.
As far as paying bonuses of tens of millions of dollars to the managers of the endowment, Harvard has to compete for qualified managers, too. If they offered $250k or whatever the professors get paid, it's doubtful that they'd get any qualified applicants.
(And yes, I'm aware that the guy they hired apparently wasn't qualified either, but that's not the point.)
Well, I'm not privy to the Harvard accounts, so you're probably right on that front. Yeah, probably signed up to some deferred payment thing. Well done.
But the other part - the $40m bonus payments (a figure from another article) - that is obscene. Doubly so for a so-called educational institution.
Yeah, capitalism, blah blah. Yeah, market rates, etc. Yeah they "made their money back" etc. Fuck all of that. Paying someone, anyone, $40m a year is obscene.
Seriously - step back for a minute and think about it. Harvard uni. Pays their top professor $250k. Pays their money managers $20m+. What does that say?
I'm not going to answer, fill in your own; but it says something, all right.
> 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.
The school is the investor.
I don't buy the "Harvard is a hedge fund" argument because it only makes sense if "hedge fund" is extended to include entities that don't have external investors. If Harvard is a hedge fund, it's a self-sufficient/independent hedge fund.
That said, the Harvard "hedge fund" internalized an investor with good tax characteristics. I don't know that the costs of maintaining that investor are less than the tax benefits, but it's at least plausible.
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.