One of the more frustrating things about Obama’s economic team and policy has been the use of the same advisors who contributed to the conditions that made the Great Recession possible (Geithner, Summers, etc.).
Some schools, such as the University of Pennsylvania, saw the changing and challenging economic environment and shifted their investments accordingly. An earlier email by Penn President Amy Gutman (via Business Insider) detailed the investment strategy and operating cost-containment measures:
We expect the Penn endowment to report a loss of 15.7 percent for the fiscal year ending June 30, 2009. The endowment significantly outperformed the S&P500 index (which was down 26.2 percent). We have benefited from a well-diversified portfolio with a core position in Treasuries, a focus on quality stocks with strong balance sheets, and a strong emphasis on risk management. Our endowment performance also reflects a decision in early 2008 to reduce equity exposure.
As important, the endowment has the necessary liquidity to meet our capital commitments and endowment payouts into the foreseeable future. While concerned about the economic environment going forward, I am pleased that the endowment is well positioned to capitalize on new investment opportunities.
I am especially pleased that, under the leadership of our Chief Investment Officer Kristin Gilbertson and our Investment Board, the talented team in our Office of Investments took strategic actions to protect Penn leading up to the crisis, which both reduced our losses and improved the long-term prospects for the Penn endowment.
As such, Penn’s endowment has weathered this crisis much better compared to its peers. Harvard’s performance will be unlikely to be featured in the Harvard Business Review as a case study.
Larry Summers is of particular interest, particularly given his former Presidency of Harvard University, and especially due to the losses suffered by their endowment fund. December’s Vanity Fair details Summers’ involvement in the University’s finances and his lack of social graces. Said Cornel West:
“I think that both as Harvard president and now as head of the National Economic Council that with Summers you have this tension between braininess and a certain lack of long-term vision,” West says. “And I really believe we need some long-term vision right now. The smartness and the brilliance, on the one hand, is fine, but I feel like you also have to treat others with a courtesy or a civility or even a decency at times.”
The Boston Globe reported that Summer’s dismissed warnings of cash liquidity problems (via the Big Picture):
Through the first half of this decade, Meyer repeatedly warned Summers and other Harvard officials that the school was being too aggressive with billions of dollars in cash, according to people present for the discussions, investing almost all of it with the endowment’s risky mix of stocks, bonds, hedge funds, and private equity. Meyer’s successor, Mohamed El-Erian, would later sound the same warnings to Summers, and to Harvard financial staff and board members.
“Mohamed was having a heart attack,’’ said one former financial executive, who spoke on the condition of anonymity for fear of angering Harvard and Summers. He considered the cash investment a “doubling up’’ of the university’s investment risk.
But the warnings fell on deaf ears, under Summers’s regime and beyond. And when the market crashed in the fall of 2008, Harvard would pay dearly, as $1.8 billion in cash simply vanished. Indeed, it is still paying, in the form of tighter budgets, deferred expansion plans, and big interest payments on bonds issued to cover the losses.
Tags: Amy Gutmann, Boston Globe, Business/Finance, Chief Investment Officer, Education, financial executive, Financial markets, Harvard, Harvard University, Hedge funds, investment, Investment Board, Kristin Gilbertson, Larry Summers, Lawrence Summers, Long-Term Capital Management, Market liquidity, Mohamed A. El-Erian, Mohamed El-Erian, National Economic Council, Office of Investments, president, The Boston Globe, the Harvard Business Review, University of Pennsylvania, Vanity Fair
