Rich Harvard or Poor Harvard ? -You Tell Me

Just kidding George H Bush I voted for you and only had one beef with your son. Just wanted people to read this blog on Harvards financial "crisis".Loved your 85th birthday party -skydive.

Harvard Financial Analyst Needed: Can you advise them?

Here's your chance to work for one of the World's most renown universities. They need help. In a soon to be published article by Vanity Fair (...Vanity Fair ?), they claim Harvard is at risk of keeping its lights turned on.

Oh, please! Is Vanity Fair turning an ant hill into a mountain to bolster slumping magazine sales or is Harvard doomed to be the next AIG or GM?

If we hired you what would you say after reviewing the attached Annual Reports ?

Here is the situation....a real-time case study:

Harvard University announced ( June 2009) they are cutting 275 jobs (less than 2% of their workforce) as a result of the poor USA economy ( dramatically reducing alumni donations) and a $8 billion market loss to their endowment fund (piggy bank). Now many people are spending hundreds of hours debating over who is to blame.

Gee doesn't sound to me like it qualifies (just yet) as Vanity Fair states, "Gripped by the worst economic crisis in its (Harvard) history". Perhaps they just need to trim the Ivy on their towers to see the world better? Perhaps they need a second opinion from a financial analyst who's removed from the Ivy League? What do you think?

Let's think. Detroit USA has over 25% unemployment. Detroit's G.M., the world's largest Automotive company (in sales) just filed Bankruptcy (laying off tens of thousands) -not to mention the hundreds of other bankruptcies in the USA Automotive, Airlines, Steel and Retail sectors over the last decade. And let's not forget a World Financial Crisis (tens-in-thousands layoffs).

So, to me the Harvard announcement seemed but a fly on an elephants back by comparison.

Yet a small band of protestors has formed a "No Layoffs Campaign", calling for "employees and students to stand up and fight". Well, the call to arms did generate 30 vocal protesters. Not quite the magnitude of what's happing in IRAN or China's 89 T -Square or the USA 70's anti-Vietnam war and 60's civil rights marches.

And, Vanity Fair’s Nina Munk says, America’s oldest university is suddenly at risk of not being able to keep the lights on. Over the past year, Harvard’s endowment has collapsed (it lost $8 billion between last July and October), its fundraising has declined, and its construction cranes have been idled. Gripped by the worst economic crisis in its history, Harvard is in trouble, and no one can decide who’s to blame. Ms. Munk asked a hedge fund manager to look at Harvard’s finances and assess the extent to which its endowment will be able to keep pace with its immovable costs. The hedge fund manager’s conclusion: “They are completely fu@ked.” Yes, this is a direct quote ( I doubt he's foolish enough to want to be identified by name). The build up to the article goes on to say Ms. Munk exposes the behind-the-scenes finger-pointing and uncertainty that has administrators longing for the gilded age of soaring endowments in her article Rich Harvard, Poor Harvard.

Here's my quick analysis thoughts...what's yours?

Ok... people, let's get a grip on our emotions. Lets examine the numbers...the cold hard facts...in these attached Annual Reports.

My fifteen minutes of looking at these attached Annual Reports concludes: HARVARD IS IN NO DANGER OF FINANCIAL DOOM. The reports show The Harvard endowment soared from $4.8 billion in 1990 to $37 billion as of June 30, 2008! The new report will show they lost $8 billion (YOY) -which means they still have $29 billion ($3 billion more than 2005). So, like Bill Gates who lost 1/2 his net worth from 1999 he is still always among world's top 5 richest individuals. HARVARD is in even better shape -$29 billion still makes them the World's Richest University Endowment Fund. So, I would say there is no need to hold a U-2 Bono Harvard-Aid World Concert Tour.

But not everything is smelling rosy -The astute "risk manger" Larry Summers (now Obama advisor along with U.S. Treasury Secretary Timothy -honest tax mistake-Geithner ) did make a $1 billion mistake on....CDS's bets!!!!
In December 2008, the university sold $2.5 billion worth of bonds, increasing its total debt to just over $6 billion. Servicing that debt alone will cost Harvard an average of $517 million a year through 2038, according to Standard & Poor’s. Harvard sold those bonds because it needed cash, fast, to cover what sources say was an almost unthinkable $1 billion unrealized loss from interest-rate swaps. The swaps were put in place under former Harvard president Larry Summers in the early 2000s to protect the university against rising interest rates on all the money it had borrowed. Instead, interest rates plunged. Yet for reasons no one can seem to explain, the university simply forgot to (or chose not to) cancel its swaps! The result was a $1 billion loss. A reporter also claims HARVARD has doubled its cost of non-teaching high paid "Senior Administrators" in the last ten years.

Still, given the USA S&P 500 index of our "blue-chip" stocks has now yielded a NEGATIVE average rate of return for the last 10 years -I think the Harvard investment managers deserve a medal (no doubt they got a nice fat 6-8 figure medal).

I found the Investment Portfolio composition shift since 1996 most intriguing ( see the Annual Reports) and in hindsight very timely. They earned high double digit returns for 9 of the last 10 years -during a time period that saw the 97 Asian Financial Crisis; 98 Russian default; 99-2000 dot.com and tech and telecom bust; and 2002 Enron energy trading bust. So, given Harvard avoided those financial disasters and continued to expand their endowment fund at even a high single digit number would be brilliant work.

Sure Harvard has probable expanded their fixed expenses beyond prudent Great Recession spending levels. But having $25-29 Billion in your piggy bank can still take care of a lot of conspicuous consumption problems.

What's your analysis of Harvard's Investment portfolio and financial stability? See Investment Discussions Section for the attached Annual Reports.

Foote Note: For the record I think Nina is one classy lady-just keep in mind she is a writer not a financial analyst. Ms. Munk began writing for Vanity Fair in 2000 and became a contributing editor in 2001, reporting on the business world. Her articles include an analysis of the management struggles between AOL and Time Warner, a profile of Steve Wynn, and an examination of the rise and fall of Wall Street’s celebrity analysts, for which she won a Front Page Award. She has also won three Business Journalist of the Year awards. Before joining Vanity Fair, Munk was a senior writer at Fortune and, previously, a senior editor at Forbes. Munk is the author of Fools Rush In: Steve Case, Jerry Levin, and the Unmaking of AOL Time Warner (HarperCollins, 2004.