How much has Harvard's endowment really lost?

And we thought Madoff was the only liar on Wall Street..puhlease ;-)

Harvard University's admission that it lost $8 billion from its $36 billion endowment fund, as staggering as it sounds, may grossly underestimate the true magnitude of the loss between from July 1 through Oct. 31 2008. According to a source close the Harvard Management Corporation (HMC), which runs the fund for Harvard, the loss is closer to $18 billion if the losses on the fund's illiquid investment are realistically appraised. (Harvard's PR team is very smooth for convincing us it was "only" $8 billion)

From 2000 to 2008, the notional value of Harvard's wealth quadrupled 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...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. (WHAT??? Less than 20% of porfolio was in 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 (NOTICE HOW MUCH ALL THESE "REAL ASSETS" HAVE DECLINED IN VALUE).
-Another huge chunk of the endowment was in private equity placements and hedge funds (UH-OH!) which imposed restrictions on withdrawals.
-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.

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).

Harvard University, 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,"
(This "thrifty/conservative mindset" should be prevailing in America right now! But we are all too busy shopping.)

The collateral damage goes far beyond the ivy-covered walls of Harvard. Money managers at other non-profit institutions plunged their funds into the murky get-rich-fast universe of illiquid investments.

California Public Employees' Retirement System, 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. (FUBAR....this is retirement money...FUBAR!)

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.


Speechless