Comments on: How Larry Summers lost Harvard $1.8 billion http://blogs.reuters.com/felix-salmon/2009/11/29/how-larry-summers-lost-harvard-18-billion/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: traducere daneza http://blogs.reuters.com/felix-salmon/2009/11/29/how-larry-summers-lost-harvard-18-billion/comment-page-1/#comment-53555 Mon, 29 Sep 2014 13:58:32 +0000 http://blogs.reuters.com/felix-salmon/2009/11/29/how-larry-summers-lost-harvard-18-billion/#comment-53555 I would like to point out my passion for your kind-heartedness supporting men who really want guidance on this one matter. Your very own commitment to getting the message around had become extraordinarily beneficial and have in most cases helped women like me to get to their ambitions. Your own invaluable instruction signifies much to me and substantially more to my fellow workers. Many thanks; from all of us.

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By: SteveBaba http://blogs.reuters.com/felix-salmon/2009/11/29/how-larry-summers-lost-harvard-18-billion/comment-page-1/#comment-9984 Sun, 13 Dec 2009 02:40:23 +0000 http://blogs.reuters.com/felix-salmon/2009/11/29/how-larry-summers-lost-harvard-18-billion/#comment-9984 10 Days later the NY Times reports:
“BOSTON — Harvard announced Thursday that it would indefinitely suspend construction on a high-tech science complex in the Allston neighborhood of Boston because of money problems.”

Regardless of the optimal policy and slight differences between the optimal and good policies, I don’t think anyone can claim that it was a “good” policy covering all economic conditions?

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By: Steve Baba http://blogs.reuters.com/felix-salmon/2009/11/29/how-larry-summers-lost-harvard-18-billion/comment-page-1/#comment-9515 Wed, 02 Dec 2009 18:08:53 +0000 http://blogs.reuters.com/felix-salmon/2009/11/29/how-larry-summers-lost-harvard-18-billion/#comment-9515 Re: DeLongThe more I think about it, which is not much, it’s unfair to compare cash returns to endowment returns because1) cash funds have to be liquid while endowment funds don’t have to be liquid – giving the endowment a slight advantage in returns from illiquidy (Felix’s objection reworded?) and2) The endowment funds should have taken all the best opportunities they identified (Alpha) first (The “best” private equity limited-subscription firms) leaving less attractive fair-bet or minimal-alpha investments for the additional cash investment (decreasing returns to scale).Over all possible outcomes, investing cash should have left Harvard with just the Beta minus costs of having to borrow in down years, assuming Harvard did not try to do more like outguess the market with interest rate swaps?What makes Summers/Harvard look bad, in my opinion, is he looks and spent like one of these homeowners who thought the good times would never end – even if he still made money on his house.

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By: Steve Baba http://blogs.reuters.com/felix-salmon/2009/11/29/how-larry-summers-lost-harvard-18-billion/comment-page-1/#comment-9481 Wed, 02 Dec 2009 05:12:04 +0000 http://blogs.reuters.com/felix-salmon/2009/11/29/how-larry-summers-lost-harvard-18-billion/#comment-9481 Seems like someone else informed Summers.From Dec. Vanity Fair:http://www.vanityfair.com/politics/ features/2009/12/summers-200912?currentP age=1″There were also charges of betrayal from Iris Mack, a former derivatives specialist at the Harvard Management Company (responsible for investing Harvard’s endowment) and the second black woman to receive a doctorate in applied mathematics at Harvard. Mack claims that soon after she started working at Harvard Management, in early 2002—after a stint at Enron—she became uncomfortable with the lack of understanding she thought her colleagues had with the risky derivatives they were investing in. (She was proved correct in the past fiscal year, when the endowment dropped 27.3 percent.) On May 12, 2002, she wrote an e-mail to Summers, alerting him to her concerns: “As a proud Harvard alum I am deeply troubled and surprised by what I have been exposed to thus far at HMC, and the potential consequences for my alma mater’s endowment. In addition, I strongly believe that if my fellow alum[s] knew how the endowment is being managed and the caliber of some of the portfolio managers, they probably would not give another dime to our endowment.”

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By: Steve Baba http://blogs.reuters.com/felix-salmon/2009/11/29/how-larry-summers-lost-harvard-18-billion/comment-page-1/#comment-9449 Tue, 01 Dec 2009 19:31:21 +0000 http://blogs.reuters.com/felix-salmon/2009/11/29/how-larry-summers-lost-harvard-18-billion/#comment-9449 Vanity Fair also had a long article suggesting that Harvard was over 100% invested:http://www.vanityfair.com/polit ics/features/2009/08/harvard200908?curre ntPage=1″Is Harvard desperate now? One clue is this: last December, the university sold $2.5 billion worth of bonds, increasing its total debt to just over $6 billion. Servicing that debt alone will cost Harvard an average of $517 million a year through 2038, according to Standard & Poor’s.””To be clear, even if you’d tried hard, you could not have picked a worse time to sell bonds than December 2008; that was the precise moment when credit markets seized up. But Harvard, it seems, had no choice. Unwilling to sell its assets at fire-sale prices, it needed immediate cash to cover, among other things, what my sources say was approximately a $1 billion unrealized loss from interest-rate swaps. That’s a staggering figure: $1 billion, roughly a third of the university’s entire operating budget for last year.”

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By: Brad DeLong http://blogs.reuters.com/felix-salmon/2009/11/29/how-larry-summers-lost-harvard-18-billion/comment-page-1/#comment-9410 Tue, 01 Dec 2009 00:12:26 +0000 http://blogs.reuters.com/felix-salmon/2009/11/29/how-larry-summers-lost-harvard-18-billion/#comment-9410 Re: Steve Baba.Touche…Percentages don’t add, but log percentages do.In logs, a 27% loss is a -0.315, while an 8% relative gain is a +0.077. So the actual log change is 6 x 0.077 – .315 = 0.147 in logs, or a percentage change of +15.8% rather than +21%

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By: Steve Baba http://blogs.reuters.com/felix-salmon/2009/11/29/how-larry-summers-lost-harvard-18-billion/comment-page-1/#comment-9405 Mon, 30 Nov 2009 22:31:38 +0000 http://blogs.reuters.com/felix-salmon/2009/11/29/how-larry-summers-lost-harvard-18-billion/#comment-9405 Summers can also take comfort in the envelope theorem where even if he is off from the optimal asset allocation a bit near the maximum, the “flat” loss near the maximum is not that much.I think both I and Delong ignored compounding in the back-of-the envelope calculations.What strikes me as odd if true in this story, man-bites-dog, is given the different incentives of a college administrator vs. fund manager, why was Summers seeking more risk than his fund manager was seeking?

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By: Lord http://blogs.reuters.com/felix-salmon/2009/11/29/how-larry-summers-lost-harvard-18-billion/comment-page-1/#comment-9391 Mon, 30 Nov 2009 20:17:04 +0000 http://blogs.reuters.com/felix-salmon/2009/11/29/how-larry-summers-lost-harvard-18-billion/#comment-9391 If they could rely on short term borrowing to compensate for cash shortfalls they would likely come out ahead. If they couldn’t they were taking on too much risk.

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By: Steve Baba http://blogs.reuters.com/felix-salmon/2009/11/29/how-larry-summers-lost-harvard-18-billion/comment-page-1/#comment-9375 Mon, 30 Nov 2009 17:52:03 +0000 http://blogs.reuters.com/felix-salmon/2009/11/29/how-larry-summers-lost-harvard-18-billion/#comment-9375 now I remember, it was Forbes that said that Harvard was 105% investedhttp://www.forbes.com/2009/02/20  /harvard-endowment-failed-business_harv ard.html”It would have been nice to have cash on hand to meet margin calls, but Harvard had next to none. That was because these supremely self-confident money managers were more than fully invested. As of June 30, they had, thanks to the fancy derivatives, a 105% long position in risky assets. The effect is akin to putting every last dollar of your portfolio to work and then borrowing another 5% to buy more stocks”

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By: Steve Baba http://blogs.reuters.com/felix-salmon/2009/11/29/how-larry-summers-lost-harvard-18-billion/comment-page-1/#comment-9372 Mon, 30 Nov 2009 17:42:35 +0000 http://blogs.reuters.com/felix-salmon/2009/11/29/how-larry-summers-lost-harvard-18-billion/#comment-9372 Don’t think I or DeLong have all the numbers or the interest in finding them, but the 27% loss is on a higher amount than the gains.I made 20% a year for 7 years, but then lost 100% in one year puts me at ZERO dolars, not a 40% gain. Likely DeLong’s point holds, but not as clear – efficient market would say close to equal?Actually saw reports that Harvard was OVER 100% invested, with private equity commitments, hedge funds and had “margin calls” in addition to needing cash to pay the bills.

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