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Harvard Ignored Warnings About Investments

TedTed
in Fund Discussions
FYI: It happened at least once a year, every year. In a roomful of a dozen Harvard University financial officials, Jack Meyer, the hugely successful head of Harvard’s endowment, and Lawrence Summers, then the school’s president, would face off in a heated debate. The topic: cash and how the university was managing – or mismanaging – its basic operating funds.

Through the first half of this decade, Meyer repeatedly warned Summers and other Harvard officials that the school was being too aggressive with billions of dollars in cash, according to people present for the discussions, investing almost all of it with the endowment’s risky mix of stocks, bonds, hedge funds, and private equity. Meyer’s successor, Mohamed El-Erian, would later sound the same warnings to Summers, and to Harvard financial staff and board members.
Mohamed was having a heart attack,’’ said one former financial executive, who spoke on the condition of anonymity for fear of angering Harvard and Summers. He considered the cash investment a “doubling up’’ of the university’s investment risk.

But the warnings fell on deaf ears, under Summers’s regime and beyond. And when the market crashed in the fall of 2008, Harvard would pay dearly, as $1.8 billion in cash simply vanished. Indeed, it is still paying, in the form of tighter budgets, deferred expansion plans, and big interest payments on bonds issued to cover the losses.
Regards,
Ted
http://ritholtz.com/2017/02/harvard-ignored-warnings-investments/

Comments

  • BrianW
    'you make the most money by anticipating change' - no truer words have ever been spoken.
  • davidrmorandavidrmoran
    absolutely, but like so many truer words ever spoken, pretty inactionable advice.
  • LLJB
    davidrmoran said:

    absolutely, but like so many truer words ever spoken, pretty inactionable advice.

    Funny enough, it might be the "best" actionable advice we can get. Putting too much reliance on the past, especially the recent past, seems to drive a big portion of the average investor's poor returns. Of course it doesn't tell you how to think about the future and that's the difficulty most people have, but spending more time trying to understand what may happen in the future and putting more weight on that portion of our analysis may be about as good as we get.

    Others have talked about looking for opinions that disagree with yours and it seems like there are a lot of mutual fund companies where pitching a new stock has to overcome all the doubters in an investment committee, which is effectively similar.

    These are important words, not necessarily comfortable words, but very important for those hoping to achieve above average returns. Even someone who decides to choose passive products still should be thinking about the future when deciding whether to allocate assets to the S&P 500, a small or mid cap index, a foreign index or anything else.

  • davidrmorandavidrmoran
    And what do we, and are we to, conclude from anticipating change? That it's going to be different? (Everything to bonds!) That it's going to continue the same? (US LC for all.) That it's going to be something different or in between? (50-50 SC and RE?) That things are going to swing really bad with dangerous psycho at the helm? (Short everything!)

    Great advice, anticipating change, and almost always inactionable. Usually you can strike that 'almost'.
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