Poor Little Rich Schools

Well that worked out well.

For the last ten years we’ve listened to Ivy League endowment managers discuss the value of timberland investments, private equity, and venture capital. While these approaches aren’t available to the average shareholder, many wondered if the combination of asset size and longer time horizons meant that school endowments weren’t working with a permanent advantage.

Well it didn’t work out that way. While the market is well off its March lows, private equity and real estate haven’t recovered yet. Many schools have been forced to borrow money and lay off staff. Nobel Laureate Robert Merton of Harvard wrote a paper outlining optimal investment strategies for endowments. It’s no surprise that he notes that the endowment should be considered along with all of the school’s assets, liabilities, income and expenses. Many of the wealthiest schools didn’t do this, and now they’re under water.

World class universities often have world class investments. But the discipline of the market is no respecter of class. Or institution.

Douglas R. Tengdin, CFA
Chief Investment Officer
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