Harvard University’s endowment is down at least $8 billion. The slump, slowdown, recession or depression–or whatever you want to call it–is taking its toll on higher education’s piggy banks.
The Wall Street Journal reports that, “The University of Virginia Investment Management Co. said it lost nearly $1 billion, or 18 percent, of its endowment over the four-month period, reducing it to $4.2 billion. In Vermont, Middlebury College says its endowment fell 14.4 percent, to $724 million. In Iowa, Grinnell College’s endowment dropped 25 percent, to $1.2 billion. In Massachusetts, Amherst College says its endowment, $1.7 billion as of June 30, also fell by 25 percent.”
Since cost containment is an idea foreign to American higher education, these losses are going to translate into many a bitter moment for countless thousands of college students. At Harvard, which is an extreme case, more than one-third of operating funds come from the now-depleted endowment. In the good old days, higher education might have shrugged its shoulders and told its students to go take out larger loans, something which is hardly possible at this gloomy moment in American history.
Had colleges and universities now looking at large losses kept their money in safe, low-interest, government securities, they would be in much better shape–but they would also have been attacked by their alumni for such conservative, low-yield use of their endowments. The Journal reports that for many years places like Harvard and Yale “pioneered an investment approach that de-emphasized US stocks and bonds and placed large sums in more exotic and illiquid investments, including timberland, real estate and private-equity funds.”
Illiquid is the word for it. Harvard has been trying to sell $1.5 billion in private equity funds and has been unable to get more than fifty cents on the dollar on its original investment. Private equity funds use their money to execute corporate takeovers, and to call them lucrative is something of an understatement; given the university’s past profits, it would be hard to shed a tear for Harvard–except that it will be innocent students and faculty who will get it in the neck.
The rationale for private equity funds, known as buyout shops, is that they take over poorly run companies and spin them off into higher levels of productivity and profitability. Though sometimes that actually happens, we have also seen private equity funds put a little money down, borrow much more to pay for the company, strip it of its assets and leave it dead or dying.