Web Letters | The Nation

Web Letter

This misses the point: these buyout funds exist only because investors fund them. The question I think the writer should be asking is why are these bastions of higher learning funding "economic vultures"?

It's high time investors of all stripes put their money where their mouths are.

Web Letter

If the situation with Harvard's endowment is symptomatic of the situation facing college endowments in general, then the premise of this article is incorrect. Certainly a current snapshot of Harvard's endowment makes their situation appear grim. But if you look at the performance of Harvard's endowment over the last twenty or even ten years, they are still far, far ahead of where they'd be if they'd invested in low-yield bonds and CDs. Also, their endowment has gone from $50B to $42B over the past few months. They are still an incredibly wealthy institution that will not suffer much as the result of this fall, unless the markets continue to collapse.

Web Letter

I respectfully take issue with both key details and the general thrust of this piece.

You put the blame for Harvard's investment in illiquid, money-losing private equity funds on the funds themselves. Private equity funds are a focused type of investment that fill a specific need for investors with a high risk appetite and ability to tolerate illiquidity. If you must point a finger, point it at Harvard's endowment managers. They were not swindled and they knew all about such liquidity risks.

As for Mervyn's being "seized and looted" by a private equity firm, you conveniently omit that Mervyn's was a money-losing operation when that firm bought it in 2004. Try to imagine what a retail company that lost money in the high-consumption years of 2004 would look like in the financial crisis of 2007-8. Had Cerberus not bought Mervyn's, Target would probably have closed the business a long time ago, but under Cerberus the company and some employees stayed afloat for a few more years. When you have a dying patient and you call the doctor and make him pay over a billion dollars to perform treatment, you can't expect him to work for free. Had the patient survived, Cerberus would have been a whole lot wealthier than it is now. There was neither seizing nor looting here.

Lastly, on the Sears case, you say that the hedge fund operator's policy of using company cash to buy back stock represents "milking the company." Stock buybacks are a common, traditional method of capital allocation that rewards shareholders for sticking around. If you own Sears stock, you might be less inclined to sell it if the board is increasing the value of your stock with buybacks. Calling a stock buyback "milking," based on the level of information you have provided, is flatly superficial and sensationalist.

Harvard didn't do its homework, Cerberus didn't do its homework, and you didn't do yours. I think you could all use a lesson in due diligence, but we shouldn't get rid of our newspapers. Or our hedge funds.

Web Letter

Mr. Von Hoffman's argument about the role of hedge funds and private equity in diminishing university endowments in recent months did not consider the role of these operations in increasing university endowments over the past sixteen years. My suspicion is that the overall balance is significantly positive. But perhaps, since he is the one paid to inform us, he could take up this easily anticipated objection to his argument?