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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

#71

Post by nemothekid »

andr3w321 wrote: post #68

I don't really care if universities hire hedge managers to manage their endowment, but it's absurd that schools with multibillion dollar endowments still charge tuition. Yale has ~12,000 students and a $26 billion endowment. Tuition is ~$45,000 per student. $45,000 * 12,000 = $540 million. They can't spend 2%(540/26,000) of their endowment per year on free tuition? What is this money for? Of course this ignores finan…

>Tuition is ~$45,000 per student. $45,000 12,000 = $540 million. They can't spend 2%(540/26,000) of their endowment per year on free tuition? What is this money for?*

Most schools with that size of tuition don't. Stanford (http://thinkprogress.org/education/2015/04/02/3642085/stanfo...) is free is your household income is less than $120,000, and cheap from there on.

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

#72

Post by rayiner »

andr3w321 wrote: post #68

I don't really care if universities hire hedge managers to manage their endowment, but it's absurd that schools with multibillion dollar endowments still charge tuition. Yale has ~12,000 students and a $26 billion endowment. Tuition is ~$45,000 per student. $45,000 * 12,000 = $540 million. They can't spend 2%(540/26,000) of their endowment per year on free tuition? What is this money for? Of course this ignores finan…

Yale's financial aid is extremely generous. It's free for HHI below $65k per year. It's $12,500 per year up to $150k. It's half-price up to $200k. I'd argue it's better for families making more than $200k/year to be paying in than to give them free tuition.

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

#73

Post by huac »

A bit tangential, but don't donate to Ivy Leagues. I get that you might feel a sense of pride in having graduated from the school, but with a 11 digit endowment, you can rest assured that the school will be there for future students in perpetuity.

Rather, give to state schools or community colleges or really, any other school. Help them serve students of all economic backgrounds, not just the elite. The most important consideration for spending money is generally its marginal benefit (obviously equal amounts are worth more to poorer institutions) but we could also think about this in terms of marginal students - how many more students can attend/graduate with less debt because of our donation?

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

#74

Post by 77pt77 »

johnloeber wrote: post #59
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…

> Or you could invest at a 7% profit rate

Tips welcome.

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

#75

Post by roymurdock »

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…

It does not make sense to compare the returns of a $26b fund to that of the S&P 500. You are thinking like a small-time investor who can simply buy and ETF or index fund. When you have $26bn to manage, you need to do a lot of work to diversify it and spread it across tons of different assets in different markets (not just US equities). Yale's target for 2016 is to hold only 4.0% in domestic equity.[1]

A good comparison would be to another fund of a similar size. According to this Citi report [2] (most recent numbers I could find by AUM size), the average fund with >$10B in AUM in 2013 returned 13%. Note - there were only 18 hedge funds in the world that fell into that bracket. That average is lower in 2015 - how much? I'm not sure. But probably under the 11.5% net return reported by Yale in 2015.

[1] http://news.yale.edu/2015/09/24/investment-return-115-brings...

[2] https://www.citibank.com/mss/sa/conference/aslf/2015/docs/ci...

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

#76

Post by huac »

rayiner wrote: post #72
andr3w321 wrote: post #68

I don't really care if universities hire hedge managers to manage their endowment, but it's absurd that schools with multibillion dollar endowments still charge tuition. Yale has ~12,000 students and a $26 billion endowment. Tuition is ~$45,000 per student. $45,000 * 12,000 = $540 million. They can't spend 2%(540/26,000) of their endowment per year on free tuition? What is this money for? Of course this ignores finan…

Yale's financial aid is extremely generous. It's free for HHI below $65k per year. It's $12,500 per year up to $150k. It's half-price up to $200k. I'd argue it's better for families making more than $200k/year to be paying in than to give them free tuition.

Yale, Harvard, Penn (to a lower extent) all have a no-loan financial aid policy. Cornell with its $6b endowment doesn't - and neither do many other schools - and that's ludicrous.

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

#77

Post by beeboop »

SilasX wrote: post #66
beeboop wrote: post #54

Earlier quoted context omitted.

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 fund…

Being able to find where you are on the risk/return and growth/income spectrums is not hard enough to merit the hundreds of millions of dollars in fees. For whatever strategy you want, find the corresponding index fund with that strategy, and it will probably have done better after expenses and will have more liquidity and less volatility.

Generally there is a small annual fee in addition to a cut of the profits. Profits on huge gaining years seem really high, but you're forgetting the essentially zero profit (or losses) on years with negative or no returns. Those years are not necessarily (and in reality, not at all) the fault of the hedge fund. They still provided a very valuable service in down or break-even years.

Also, managing billions of dollars is hard as shit and requires a ton of expertise and talented managers. You can't just take a hedge fund with $50 million and hand them $4 billion and say "do the same thing, but with more money".

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

#78

Post by harryh »

huac wrote: post #76
rayiner wrote: post #72

Earlier quoted context omitted.

Yale's financial aid is extremely generous. It's free for HHI below $65k per year. It's $12,500 per year up to $150k. It's half-price up to $200k. I'd argue it's better for families making more than $200k/year to be paying in than to give them free tuition.

Yale, Harvard, Penn (to a lower extent) all have a no-loan financial aid policy. Cornell with its $6b endowment doesn't - and neither do many other schools - and that's ludicrous.

Harvard Endowment - 37.5B. Yale - 25.5B. Penn - 10.13B. Cornell - 6B (as you said).

Harvard Undergraduates - 6,700. Yale - 5,500. Penn - 10,500. Cornell - 14,000.

Maybe it's because Cornell has less money and more students than the other schools you listed?

Spending 4% a year, that gives Cornell about 17k per student. It doesn't sound unreasonable to think that's just not enough to cover the tab.

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

#79

Post by spectre256 »

huac wrote: post #73

A bit tangential, but don't donate to Ivy Leagues. I get that you might feel a sense of pride in having graduated from the school, but with a 11 digit endowment, you can rest assured that the school will be there for future students in perpetuity. Rather, give to state schools or community colleges or really, any other school. Help them serve students of all economic backgrounds, not just the elite. The most importan…

But then you don't get invited to Ivy League donor parties

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

#80

Post by nostromo »

huac wrote: post #73

A bit tangential, but don't donate to Ivy Leagues. I get that you might feel a sense of pride in having graduated from the school, but with a 11 digit endowment, you can rest assured that the school will be there for future students in perpetuity. Rather, give to state schools or community colleges or really, any other school. Help them serve students of all economic backgrounds, not just the elite. The most importan…

I agree with you, but many people see that as a plus when donating.

If I give $x to an organization that desperately needs it, it will be spent immediately. If I give $x to an endowment, it will sit there in perpetuity, providing investment income to the organization for decades or centuries.

Ben Franklin understood this and left a small amount of money (1,000 pounds) to the cities of Boston and Philadelphia in his will, instructing that the funds not be used for 200 years.

http://eddiethompson.org/2012/09/30/franklin_endowment/

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