Harvard ignored warnings about investments - The Boston Globe

Summers had a huge influence over Harvard money matters during his tenure, according to several people who worked with him. Known for his love of intellectual debate, he would hear out the opinions of others but ultimately was forceful in his own views. He was more financially sophisticated than most other Harvard presidents, and more deeply involved in decisions, from how to maximize returns on Harvard's cash to using financial instruments called swaps, to hedge against the risk of rising interest rates - a hedge that would ultimately backfire. ^{link »}

"In the years after Summers left, market conditions and Harvard's liquidity changed dramatically. The university's financial strategies could have and should have changed with them.'' ^{link »}

Members of the financial staff, a broader financial advisory committee, and the university's elite six-member board all weighed in. But Summers was a powerful advocate, and with the returns so good for so long, there was little support for exercising caution. ^{link »}

The power is just in the hands of too few people with too little accountability.'' ^{link »}

The very thing that the former endowment chiefs had worried about and warned of for so long then came to pass. Amid plunging global markets, Harvard would lose not only 27 percent of its $37 billion endowment in 2008, but $1.8 billion of the general operating cash - or 27 percent of some $6 billion invested. Harvard also would pay $500 million to get out of the interest-rate swaps Summers had entered into, which imploded when rates fell instead of rising. The university would have to issue $1.5 billion in bonds to shore up its cash position, on top of another $1 billion debt sale. And there were layoffs, pay freezes, and deep, university-wide budget cuts. ^{link »}

Even with the losses, Rothenberg said, the cash strategy has earned Harvard returns averaging 8.9 percent over the past 10 years. He and other university officials say the cash pool is still ahead of where it would have been, if invested more conservatively all along. But no one could be specific about what that net gain has been. ^{link »}

Re: Dec 09 by mnovendstern

Harvard ignored warnings about investments - The Boston Globe