Why Harvard Is Smarting

WSJ.com: By CRAIG KARMIN and GREGORY ZUCKERMAN

Harvard University's endowment fund has graduated some of the most sought-after money managers in the hedge-fund world.

Now one of those stars is teaching Harvard a lesson of its own.

In the past month, the university lost about $350 million through an investment in Sowood Capital Management, a hedge-fund firm founded by Jeffrey Larson. Mr. Larson managed Harvard's foreign-stock holdings until 2004, when he left to set up Sowood, which recently lost more than 50% of its value amid bad bond investments....

While $350 million is a relatively small hit for the $29 billion Harvard endowment, the nation's largest, it highlights the risks as colleges nationwide embrace nontraditional investments such as hedge funds and private equity. Investments like these are less regulated than more traditional options, and often engage in the risky practice of investing borrowed money in hopes of amplifying their returns.

Along with Yale University -- where the roughly $18 billion endowment has achieved annual returns of about 17% in the past decade -- Harvard was among the first universities to embrace such alternative investments. The goal is to seek good returns that don't move in tandem with stock and bond markets, thereby giving diversity to the overall portfolio.

The strategy worked particularly well in the 2000-2002 period, when hedge funds generally did a much better job than other investments in protecting their clients' money from losses in the aftermath of the dot-com stock bust. ...

Harvard Management Co., which manages the endowment, has long been viewed as one of the nation's more successful and trailblazing investment-management firms. It boasts an annualized return of 15.2% in the past 10 years through June 2006. That compares with an 8.9% median return for endowments and foundations over that time period, according to Wilshire Trust Universe Comparison Service.

As Harvard's returns grew, so did its money managers' paychecks, which soared into the millions of dollars a year. That sparked controversy among alumni and others associated with the university, who argued that investment managers shouldn't be paid better than the school's Nobel Laureate professors, or its deans.

Mr. Larson's $17.3 million in payments in 2003 from Harvard were among the large salaries that drew complaints from alumni several years ago.

In 2005, Mr. Meyer and some of his top staff left the university amid complaints about their pay. ...

Nationwide, university endowments continue to show a greater risk appetite than pension funds and other large institutional investors. The top 53 university endowments, with nearly $217 billion in assets, have invested about 18% of their money in hedge funds, according to data provider HedgeFund Intelligence. The average public pension fund has only about 5% in hedge funds.

Kevin Lynch, a managing director at consulting firm RogersCasey, says there are at least two good reasons why universities have more readily welcomed hedge funds and private equity. Unlike public or corporate pension plans, which make annual payouts to beneficiaries, endowments have longer-term investment horizons, and therefore are more comfortable with the fact that alternative investments generally require investors to stay in for years.

University Endowment News

Inside Higher Ed:

Harvard University’s endowment lost about $350 million in the last month because of poor performance by a hedge fund led by a former senior endowment manager at the university, The Wall Street Journal reported. The fund, Sowood Capital Management, recently lost more than half of its value. While $350 million is more than many colleges have ever had in their endowments, there won’t be cries of financial exigency coming from Cambridge. Harvard’s endowment is worth about $29 billion.

I wonder what it looks like after last week's downturn?
I guess that takes care of my contributions for the past 35 years, and the next several thousand.

Wasn't there a ruckus about compensation to Harvard's in-house endowment managers a few years ago? Did it make cosmetic sense to move them out, and compensate at (short) arm's length?

Has anyone published a comparison of returns on endowment covering the elite private schools and the publics with significant endowments? One reads about especially handsome performance by Yale and Princeton (esp. after big market reversals). I guess with rewards come risks.

Va. Supreme Court denies appeal challenging school's coed swtich

Daily Press (Newport News, VA): By MICHAEL FELBERBAUM (AP)

RICHMOND, Va. - A three judge panel of Virginia Supreme Court on Tuesday denied an appeal challenging a decision by the former Randolph-Macon Woman's College to admit men.

Earlier this month, lawyers for a group of students at the Lynchburg school challenged the coed status of the college asked the state's high court to grant an appeal of the lawsuit. The group had said the school breached an implied contract with students when its governing board decided to admit men.

College officials have said the decision to admit men after 116 years was largely a financial one. The school officially changed its name to Randolph College on July 1 as it prepares to admit 67 men in the fall....

An appeal of a second lawsuit by a group of seven students and donors, which claims the school's board can't use the college's assets to benefit men, is still pending.

That suit, also dismissed in January, claims the school is a "non-stock, charitable corporation" that accepted donations during a time when its mission was to educate women.

It was a triumph a generation ago when formerly all male institutions "broke" donative provisions limiting benefits to (often white) males. This?

It's not the principle of the thing, it's the price we're haggling about?

Inside Higher Ed:

The dispute and negotiations over a proposed gift to rename the University of Iowa’s College of Public Health have largely focused — at least in public — on the ethics of naming a college for a corporation. But e-mail records obtained by The Des Moines Register suggest that the size of the proposed gift may also have been a factor. Wellmark Blue Cross and Blue Shield offered $15 million to have the college named for the company, an idea that faculty members first objected to but have since agreed to reconsider. One e-mail quoted by the newspaper, from the college’s dean, noted that other schools of public health had been named (for individuals) based on gifts of $25 million to $50 million, much more than Wellmark was proposing. “The deans I consulted all indicated that an offer of $15 million would be embarrassingly small and significantly undervalue our college,” wrote the Iowa dean, Jim Merchant.

Oxford digs deeper to seek out the best students

The Observer By Anushka Asthana

Oxford University is refining its admissions policy in an attempt to discover more academically bright pupils who are attending poor-performing schools.

For the first time, professors will have detailed information that allows them to compare the quality of schools before candidates are offered places. ...

The aim is to help professors differentiate between pupils who achieved top grades at strong state schools, where they had lots of academic support, small class sizes and training on how to apply, and those who reached the same level with no such advantage.

It is part of a wider drive among universities to select 'high potential' pupils from less affluent backgrounds. ...

[Mike Nicholson, Oxford's director of undergraduate admissions] said Oxford had a 'conscious obligation' to seek out the best students regardless of background, and the new information on schooling would be one factor that could help them. 'Potential is very difficult to measure,' he said. 'But we are keen not to just look at [students'] existing performance but how they could do over three years. A student who is in an environment with a lot of support will be well prepared. Where a student has less support, we need to factor that in.'...

However, critics warned that universities should not use 'social engineering' to try to manipulate the figures. Some fear that Oxford will use the details about educational background to discriminate against pupils at the best schools. ...But others said the worries were unfounded. 'We are talking about a university that still gives 50 per cent of places to pupils from public [in American parlance, private] schools; that is hardly discriminating,' said Sam Freedman, head of research at the Independent Schools Council.

Love on Campus

Inside Higher Ed : By Scott McLemee

One generation’s faculty gossip is sometimes another’s cultural history. At the University of Chicago in the early 1950s, a professor stopped a teenage student leaving one of his classes. She was not properly enrolled in the course, but bureaucratic proprieties really did not have anything to do with it. She was stunning. He was smitten. They had lunch. And 10 days later, give or take, Philip Rieff was joined in marriage to a young woman who never actually did change her name to Susan Rieff, instead always being known as Susan Sontag.
They did not live happily ever after. ...

The narrator mentions reading George Eliot as a young bride and bursting into tears at the realization she had, like Dorothea in Middlemarch, married Casaubon.

As you may recall, Dorothea is at first transfixed by the learning and gravitas of Casaubon, a scholar who is many years her senior. It soon dawns on her (as it does perhaps more quickly for the reader) that he is a bloodless pedant, joyless except when venting spleen against other bloodless pendants. And there are hints, as clear as Victorian propriety will allow, that Dorothea’s honeymoon has been disappointing in other ways as well.

Sontag’s allusion must rank as one of the more subtly devastating acts of revenge ever performed by an ex-wife. ...

The summer issue of The American Scholar contains an essay by William Deresiewicz called “Love on Campus” that identifies a “new academic stereotype” visible in popular culture. ...

Deresiewicz offers a cogent analysis of how this stereotype may reflect the changing place of academe in American society and the contradictory attitudes it evinces. He also presents some thoughts on a dimension of education that popular culture for the most part ignores: the eros of learning, the way a student can fall in love with a teacher for reasons having nothing to do with sexuality. Combining them, as Sontag tried to do with Rieff, seems like a bad idea.

$50-Million Donor to U. of Michigan Will Review Performance as Part of Gift

The Chronicle: Daily News Blog:: Erin Strout

The University of Michigan announced today that it had received an anonymous $50-million gift that comes with some hefty strings attached to it. The pledge is for the new Cardiovascular Center, which opened on June 11.

The donor plans to give $25-million over the next 10 years, beginning this month, and the university will receive the remaining $25-million upon meeting goals agreed upon by the donor and the center’s leaders, according to a university news release.

The institution and the donor have created benchmarks that will allow the benefactor to review the center’s performance before releasing the final $25-million. Some categories that will be measured for results include performance on clinical measures, to ensure that the university is providing effective care, and scores on patient-satisfaction surveys.

Other areas that will be monitored by the donor include the amount of research grants won, the number of research publications and patents, and the quality of teaching. The donor has also asked that the center be led by a team, not an individual, so that specialists are encouraged to work together.

An interesting approach to philanthropy. I wonder whether it will catch on. Especially for my donations in the low to mid three figures to Harvard and Yale.

Mental-Health Lawyers Caution Colleges Against Disciplining Students for Emotional Difficulties

From The Chronicle: :

College administrators should be careful not to discriminate against troubled students in response to Seung-Hui Cho's shooting rampage at Virginia Tech, psychologists and lawyers said at a news briefing on Thursday.

Violent behavior is rare among people with mental illness, said Robert Bernstein, a psychologist and executive director of the Judge David L. Bazelon Center for Mental Health Law, which sponsored the briefing. Students should feel comfortable seeking counseling without worrying that their colleges will discipline them, said Karen A. Bower, a senior staff lawyer for the center.

Colleges' various policies on students' mental health show that the institutions are just beginning to navigate that terrain, Mr. Burnim said. The Bazelon Center plans to release soon a model policy that would encourage students to seek treatment and ensure that any disciplinary action is based on dangerousness and not discrimination, said Ms. Bower.

Conflicting interests within Universities

From The New York Times:

With Congressional hearings on the student loan scandal scheduled for next week, lawmakers are looking around for ways to root out the kinds of corruption uncovered in recent investigations by New York’s attorney general, Andrew Cuomo. A good start would be to pass the Student Loan Sunshine Act, an important bill that was introduced months ago.

The Sunshine Act would make it a federal crime for lenders to offer college officials anything of value in exchange for the right to do business at a given school. The new law would require the colleges to explain publicly why they had placed a given lender on the school’s “preferred lender” list and would force the institutions to disclose any special deals that had been made behind the scenes.