America's universities: Hedge funds saddled with inconvenient educational institutions

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Holy cow. Back to the fields! This is bad news.

Edit: Basically, this is short-termism running riot. It’s a major reason why money should have nothing to do with education. So long as the key facilities are there, and tutors are decently rewarded, this cannot happen.


Lots of words used incorrectly in that The Nation article and a fair number of half-truths.

I realize its very trendy to use the term hedge fund as a standin for any and all evil but for the most part that hasn’t been true in a very long time. Most of what gets called hedge funds in the non financial press are just index tracking or “alternative funds”. Note that in finance alternative has a specific definition and doesnt mean “exotic” or even imply a heavy risk rating. It simply means investing in things other than stocks, govt paper or rated corporate bonds. An investment in a non government solar field in Africa? Thats an “alternative” investment by definition.

Also note that even genuine hedge funds have not been offering really good returns for a while either and lots of them have simply closed. Management fees have been trending downward for years anyway.

Conflict of interest is definitely a big red light though, how the heck that got past a compliance board is a mystery.

Kudos on the scare headline though.

But look at it this way: If Sanders becomes President - unlikely I know, but still - and if he manages to make free college a reality - another big if - then these endowments will be set free to play in the casinos of the world without a shred of remorse!

Assuming trustees have the capacity for remorse.


Public necessities like water, power, or education should never, ever be left in the hands of for-profit corporations.

They are obligated to charge more for less, which is the exact opposite of the public good.


Maybe the smaller endowments and state universities are different, but the largest university endowments are the opposite of short sighted. Harvard has been managing its endowment for centuries and its spending plan has at least broad stroke outlines of what they need to do for the next fifty years. For them, losing ten billion dollars and delaying plans for five years until the market rebounds is no big deal.

As for high management fees: either it is worth it in which case who cares, or it isn’t worth it in which case they’ll stop doing it (once that is clear enough to overcome institutional inertia). This doesn’t stop them from making stupid spending choices, like shortly after I graduated when they decided to stop serving hot breakfast to save money (even though students pay for their meal plans). But anyone who read Piketty knows the large university endowments have been growing faster than the market as a whole, just like the largest private fortunes, which implies there is a lot of value in (carefully vetted) management.

Note: everything above is totally separate from the are-they-helping-cause-financial-crises problem. I’m just saying that what they do may be a reasonable choice given the laws and their incentives. Sometimes everyone does exactly what economics says they should do, and as a result the overall system does something insane.

Sorry, but the largest universities have been managing their endowments the last few decades exactly like private hedge funds, mostly as institutionalized insider trading. This graph indicates a change in investment strategy. Returns like that are basically impossible to achieve honestly. People thought Madoff’s far more modest 12% returns were crooked, but they just thought he was another crooked trader not an actual fraud.

Apply this Madoff quote from LA Times to the hedge funds & large endowments:
“We felt it was too good to be true,” Charles Gradante, co-founder of hedge-fund research firm Hennessee Group, said of Madoff’s investment performance. “You can’t go 10 or 15 years with only three or four down months. It’s just impossible.”


“What terrible journalism. That man wasn’t shot dead through the head with a piece of lead. It was steel buckshot!”

(i.e., I think you’re carping about a difference that doesn’t really make much difference.)


Not going to dispute that, but even so, Madoff wasn’t tax exempt, nor is the market as a whole. That’s an immediate 20-40% faster growth rate right there (long vs. short term capital gains, approximately) that we should expect to see for endowments versus everyone else.

A distinction without a difference?



IIRC The Economist did a piece on university endowments where they countered that idea. Unfortunately I recently had to recycle most of my print copies so I cant easily find the reference.

Who cares about facts when it’s easier to manipulate feels, right?

Chastise me all you want but a reporter can’t get the facts straight or can’t be bothered to explain differences to non specialist audiences, I call that sloppy reporting. Or maybe using editorial voice to manipulate, but that to me is a separate evil.


Congrats on finding something about it to complain about. :clap:


But… but… feelings are important!

…or something like that…

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Interesting. I was able to find one disputing the claim (which I don’t actually remember from the book) that inherited wealth grows faster the entrepreneurial wealth, but that one does not dispute that the largest privatemail fortunes grow faster.

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