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Harvard Endowment’s Investment Problems

Last update on: Feb 11 2020

The Harvard University Endowment recently overhauled its investment practices. It intends to reduce its staff and rely more on outside investment advisors. But a major problem that university has had apparently isn’t with its endowment investments but with the way its cash is invested. This article explains that over the objections of several of its endowment heads the university has invested its cash alongside its aggressive endowment portfolio. The result is a substantial increase in the risk taken by the university, and that risk hasn’t paid off, according to the article.

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.

 

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