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Never mind the past, but in the future, wouldn't it be wise to quit trying to show the world how smart and sophisticated we are?
Instead of all of the exotic private placements, and hedge funds that we have bought in the past, why not rely on the wisdom of two Princetonians, for the future?
Jack Bogle @'50, founded the Vanguard Mutual fund family. Vanguard has an ETF of the S&P 500 that has returned 9.6% over decades. That looks pretty good, compared to having to earn 10% a year for the next 3 year, just to get back to where we were in 2008.
Burt Malkiel, of the Economics Dept wrote a book in @1973 in which he opined that it was not possible to time stock purchases, or to pick winning stocks. He has been proven correct. (Good interview with him in last week's Barron's.)
With this wisdom, why not fire the genius investment managers of the endowment , that we have been paying $multi millions to, that got us into this mess. We are now having to borrow $1 Billion, just to pay the rent, to make up for their incompetence. (Interest on this must be at least $4 Million /year.)
Furthermore, the stuff that they got us into, is being written down, because it is "illiquid". Meaning that a joint venture owning timberland in Oregon, let's say, isn't worth what we have been carrying it for, and it is generating little, or no income. At the moment, it is probably worthless. Big market for this stuff in the future? No suckers with big check books around any more.
Actually, the 25% endowment loss, is probably a lot worse than that, because some of the stuff that is "illiquid", is actually worth ZERO, because there are no willing buyers on the horizon.
Why not, for the future:
1.Fire the expensive managers that got us into this.(A football coach with their record would be long gone.)
2.Put some money with conservative Vanguard like index funds.
3.Put some$ in TIPS, that are inflation protected government securities.
4.Buy some conservative corporate bonds, with little risk, and income that is tax free to a university endowment.
Not very sexy, but a whole lot better than where we are now, and are likely to be for the forseeable future.
Absolutely right, Loyal Tiger!
All of the Ivy League endowments have wasted huge amounts of money on investment managers, that have left a lot of financial wreckage that will take a long time to repair.
As Throueau said, "simplify, simplify, simplify".
It's actually much worse than it appears in this article.
One of the reasons that there has been such loss in institutions that are subjected to generally accepted accounting principals, such as commercial banks, is that have been forced to "mark to market" their assets. In other words, value the assets at their actual market value.
Instead of being worth over $16B, the endowment is probably worth about half of that.
Most of the endowment assets are totally illiquid. No willing buyers on the horizon, no income stream, and thus worth little more than zero, based on generally accepted accounting principals.
Looks like the trustees have been totally complacent, and the actual results are being swept under the carpet.
How about a public disclosure of the assets of the endowment, and the value that the endowment is carrying them on the balance sheet? Not likely.
The sad fact is that we have paid out multi millions$ for management, that has been less successful than the results would have been, if the endowment had been put with,let's say,Vanguard, in no load funds, over the years.
You really need to click on the Vanity Fair article, and read the whole thing, to get a picture of the reality of the wreckage, which is worse to the power of 10, than is presented by Shirley.
The Vanity Fair article points out that much of the problem comes from the administration letting faculty salaries, administrative costs, and overhead get completely out of hand, at Harvard, and counting on unrealistic returns form the endowment to cover up reckless spending. Has to be the same thing here. The trustees should hold the administration accountable for this mismanagement.
To illustrate the point that Wall Street Tiger makes about the assets of the endowment being worth a fraction of what the University says they are worth, even after being written down, read this clip from Vanity Fair, cited in the article:
Vanity Fair article,page 26; money manager meets with president of Harvard Management Co., knowing that she was trying to unload assets;
"He:Hey look, I'll buy it back from you. I'll buy my interest back.
She: Great.
He:Here, I think it's worth - you know today the (book)value is a dollar, so I'll pay you 50 cents.
She: Then why would I sell it?
He:Well, why are you? I don't know. You're the one who wants to sell, not me. If you guys want to sell, I'm happy to rip your lungs out...If you are desperate, I'm a buyer."
Welcome to the real world. It would be great if the trustees woke up from their summer slumber, and started holding both the administration, and the management of the endowment accountable for gross negligence.
shabbinteresting
"That looks pretty good, compared to having to earn 10% a year for the next 3 year, just to get back to where we were in 2008."
And we would have to *lose* 10% a year for the next 3 years to get to back to where we would have been had we used your 10% growth since 1998. No, I think the old way looks better, even if you get a big loss every once in a while.
"Burt Malkiel, of the Economics Dept wrote a book in @1973 in which he opined that it was not possible to time stock purchases, or to pick winning stocks. He has been proven correct."
Tell that to Warren Buffett.
Since the 70s, Warren Buffett actually hasn't picked winning stocks, like a stock picker would do. He buys controlling shares of a company and installs management - it's an active role, as opposed to a passive investor that many fund managers are.
Technically Warren does "pick" the stocks in that he buys up control of the company, but he's really buying the company. You don't see him buy regular stock and hold onto it to sell it for a gain, like Benjamin Graham would.