Universities Are Becoming Billion-Dollar Hedge Funds with Schools Attached • Hacker News Board

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

#51

Post by SilasX » Mon, Mar 21, 2016, 11:26 PM UTC

rayiner wrote: post #42

> 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.

Is that investment gain net of the fund manager payment? Because an S&P 500 index fund would have returned 13.5% that year[1], or ~$3.5 billion, about the same as $4 billion minus the half-billion hedge fund managers costs. And presumably they had to pay other investment managers (for non-hedge investments), and the money in HFs is significantly less liquid and accessible and more volatile.

[1] http://performance.morningstar.com/fund/performance-return.a...

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

#52

Post by jessaustin » Mon, Mar 21, 2016, 11:28 PM UTC

maxxxxx wrote: post #41

narrowrail wrote: post #38

Earlier quoted context omitted.

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.

From my limited exposure to them, they hadn't for some time before the IPO either. The fact that they considered an IPO was probably a bad sign.

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

#53

Post by SilasX » Mon, Mar 21, 2016, 11:28 PM UTC

hkmurakami wrote: post #49

SilasX wrote: post #13

Earlier quoted context omitted.

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.

Sure, but (by most metrics) hedge funds are going to be riskier/more volatile and you have to lock up your money for longer. So the same return would count as worse performance if placed in hedge fund (and that's not even accounting for differences in expenses yet).

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

#54

Post by beeboop » Mon, Mar 21, 2016, 11:29 PM UTC

SilasX wrote: post #51

rayiner wrote: post #42

> 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.

Is that investment gain net of the fund manager payment? Because an S&P 500 index fund would have returned 13.5% that year[1], or ~$3.5 billion, about the same as $4 billion minus the half-billion hedge fund managers costs. And presumably they had to pay other investment managers (for non-hedge investments), and the money in HFs is significantly less liquid and accessible and more volatile. [1] http://performance.mor…

This is ignoring a lot that goes into investment management. It's easy to say S&P would have done just as well on that particular year, but what about every other year? What about years with big losses? Additionally, investment managers do things like create portfolios for you that match your risk tolerance or other special needs/requirements.

Overall, it's true that managed investments don't do as well as index funds, but it's ignoring a lot of the risk management that goes into being actively managed.

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

#55

Post by leakybit » Mon, Mar 21, 2016, 11:30 PM UTC

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?

The internet has already driven the cost of education to zero, what schools are really selling are degrees. Anyways, Yale only spends $170 million on tuition assistance, but in reality ; Yale covers full tuition and housing costs for students who's family income is less than $200,000.

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

#56

Post by eldavido » Mon, Mar 21, 2016, 11:30 PM UTC

SilasX wrote: post #51

rayiner wrote: post #42

> 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.

Is that investment gain net of the fund manager payment? Because an S&P 500 index fund would have returned 13.5% that year[1], or ~$3.5 billion, about the same as $4 billion minus the half-billion hedge fund managers costs. And presumably they had to pay other investment managers (for non-hedge investments), and the money in HFs is significantly less liquid and accessible and more volatile. [1] http://performance.mor…

Except that you'd also get the stock market's volatility.

I get your point but you can't really make that argument without considering volatility. Endowments in particular, need fixed income-like payment streams, as they're funding salaries and grants, after all.

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

#57

Post by [deleted] » Mon, Mar 21, 2016, 11:30 PM UTC

rayiner wrote: post #42

> 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.

[deleted]

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

#58

Post by nicobn » Mon, Mar 21, 2016, 11:30 PM UTC

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…

4%-6% is almost certainly sustainable. Higher pay outs expose Harvard to wealth dilapidation.

Companies, institutions and even empires come and go. The most successful adhere to conservative governance and plan for the next century, not the next semester.

Harvard was founded in 1636. So far, it has survived 380 years. That's pretty impressive.

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

#59

Post by johnloeber » Mon, Mar 21, 2016, 11:31 PM UTC

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…

You are now encountering the concept of a safe withdrawal rate. If you have money and want to spend it effectively, the best course of action is not to immediately spend it all, but to invest it. Then, once a year, you'll want to take the profits, reinvest a sufficient amount such that your capital doesn't depreciate due to inflation, and then to spend the rest. A more conservative strategy would have you reinvesting even more.

What's the point? Well, suppose you have $100. You could spend it all now. Or you could invest at a 7% profit rate, reinvest 2% for inflation, and then spend the remaining 5%. This lets you spend $5 a year, inflation-adjusted, for the foreseeable future -- so if your timeframe is longer than twenty years (20x5 = 100), it makes sense.

That's not to mention that having a lot of money in investments gives a school substantial practical/political power.

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

#60

Post by bhewes » Mon, Mar 21, 2016, 11:33 PM UTC

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

Ha, that is what I get for not paying attention over the past four years.