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Universities Are Becoming Billion-Dollar Hedge Funds with Schools Attached

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Re: Universities Are Becoming Billion-Dollar Hedge Funds with Schools Attached

#41

Post by maxxxxx »

narrowrail wrote: post #38
bhewes wrote: post #11

I don't know how much this matters. Harvard has the richest endowment but still has less money then nine individuals. I am just waiting for say the Carlyle Group to go public like KKR or Blackstone to make HH funds boring and mainstream.

You are in luck, "In 2012, Carlyle completed a $700 million initial public offering and began trading on the NASDAQ stock exchange on May 3, 2012." https://en.wikipedia.org/wiki/The_Carlyle_Group

I didn't know they were public. Looking at the stock chart they don't exactly kick ass.

Re: Universities Are Becoming Billion-Dollar Hedge Funds with Schools Attached

#42

Post by rayiner »

> Yale’s comparatively modest $26 billion endowment, for example, made hedge fund managers $480 million in 2014, while only $170 million was spent on things like tuition assistance and fellowships for students.

For context, Yale's endowment produced an investment gain of $4 billion that year. Seems like the $480 million was money well spent.

Re: Universities Are Becoming Billion-Dollar Hedge Funds with Schools Attached

#43

Post by aroberge »

toomuchtodo wrote: post #7
bpodgursky wrote: post #5

Earlier quoted context omitted.

This is incredibly shortsighted. The point of an endowment is not to pay it off, the point is that the endowment persists indefinitely, and the interest / returns fund operations. If people wanted to contribute directly to a university, they can. Instead they're contributing to the endowment. Respect that choice. It's pathetic that universities have actually set up a sustainable source for funding scholarships etc in…

What if university endowments were used to fund research and implementation into ways to drive down the cost of education to zero?

Endowment funds are accrued through donations. The vast majority of donors would have no interest in giving money towards operational costs; they are interested in something that can be seen as a legacy.

Re: Universities Are Becoming Billion-Dollar Hedge Funds with Schools Attached

#44

Post by ArkyBeagle »

lr4444lr wrote: post #12

Sidenote, and I may get down-voted heavily for saying this, because he's got plenty of "cred" on so many different fronts, but Noam Chomsky always struck me as a hypocrite when it came to his economic and political thinking for taking a pension supported by the $13 billion MIT endowment, which is surely generating money through many of the practices disparaged both in this article and Chomsky's own beliefs.

We're all hypocrites. Reality is stubborn in that way.

Re: Universities Are Becoming Billion-Dollar Hedge Funds with Schools Attached

#45

Post by pdeuchler »

KKKKkkkk1 wrote: post #32

The problem is that an Ivy League school is paying the expenses of managing investments worth a gazillion dollars instead of focusing on research and education. Money management is not what the universities are good at, and it's not what they are for. But in fact, the "hedge fund problem" is not the only problem American universities have - they are also running sports teams, housing, construction and real estate ope…

You have this entirely backwards. Sports team management, housing, construction, and especially investment operations are exactly what today's schools are good at!

The pesky problem that keeps popping up is those darned students and their education...

Re: Universities Are Becoming Billion-Dollar Hedge Funds with Schools Attached

#46

Post by [deleted] »

KKKKkkkk1 wrote: post #32

The problem is that an Ivy League school is paying the expenses of managing investments worth a gazillion dollars instead of focusing on research and education. Money management is not what the universities are good at, and it's not what they are for. But in fact, the "hedge fund problem" is not the only problem American universities have - they are also running sports teams, housing, construction and real estate ope…

[deleted]

Re: Universities Are Becoming Billion-Dollar Hedge Funds with Schools Attached

#47

Post by hkmurakami »

teaman2000 wrote: post #2

The issue is not so much that schools invest in hedge funds (the endowment managers are just trying to maximize returns), but that the endowments pay out such a small percentage of their funds each year to support research, financial aid, and everything else. Harvard pays out only 4-6% of the endowment yearly. On their huge endowment, if they increased the payout by .5%, they would have a whole lot more to spend on w…

Harvard's history is longer than that of the United States. Planning for year 3000 seems perfectly prudent, and honestly, responsible behavior.

Re: Universities Are Becoming Billion-Dollar Hedge Funds with Schools Attached

#48

Post by hkmurakami »

hackuser wrote: post #30

I generally don't support endowments. The ROI seems very poor: Only interest on the investment will be used for the cause you are supporting, and it will be for undetermined purposes in perpetuity. Also, a permanent source of funding could be a very serious problem, creating a disincentive to change. If you were investing for personal profit rather than to support a cause, would you even consider an investment that o…

Yes I would take the Yale endowment's 20 year risk adjusted returns in a heartbeat.

Re: Universities Are Becoming Billion-Dollar Hedge Funds with Schools Attached

#49

Post by hkmurakami »

SilasX wrote: post #13
andmis wrote: post #9

Is it just me or does the article fail to mention/estimate/discuss how much money the universities received _from_ hedge funds? It repeats over and over again how much the schools _paid_ in managers' fees, but if the return was several times that amount, then I guess I don't see the problem.

If they did show that data, it would look worse. On average, universities don't outperform (far lower-cost) index funds with similar objectives, per the recent HN story: https://news.ycombinator.com/item?id=11202349

Any discussions of returns must necessarily consider the risk incurred to achieve that return.

Re: Universities Are Becoming Billion-Dollar Hedge Funds with Schools Attached

#50

Post by digikata »

inthewoods wrote: post #35

I've been waiting for this article to surface on HN. The other problem here is that hedge funds, as an investment vehicle, really haven't done that well. So it is essentially a transfer of donations to the hedge fund industry while the endowment could have done better avoiding them altogether. Obviously there are some hedge funds that have done well - but on the whole they are expensive and do not add alpha. Back in…

Is the outsourcing somewhat recent? I've been reading through the actual text in the Piketty book and he discusses the relative advantages of large university endowments vs smaller ones. He has a data table in it for 1980-2010 where the returns seem pretty reasonable (but much higher for larger account balances of Harvard-Yale-Princeton). http://piketty.pse.ens.fr/files/capital21c/en/pdf/T12.2.pdf

People can argue about his book's overall points, but few can argue that he's accumulated a lot of interesting data.

I've been trying to reconcile that data with the Buffet view of complex hedge funds not beating straight index funds for gain... and by some other data Buffet is correct.. but the risk profiles may differ (Though it often feels like "risk" is the financial industry equivalent of engineering fudge factors).

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