American Conservative: Is Harvard a College or a Hedge Fund?

When people describe Harvard, they frequently point to its academic and research pedigree and almost four hundred years of its storied history. But few would think to praise its financial acumen or point to its impressive record as one of the most prominent hedge funds in the United States. Most would be surprised to hear [...]

When people describe Harvard, they frequently point to its academic and research pedigree and almost four hundred years of its storied history. But few would think to praise its financial acumen or point to its impressive record as one of the most prominent hedge funds in the United States.

Most would be surprised to hear the school described that way. Yet thanks to the university’s enormous endowment fund, in a lot of ways, a hedge fund is exactly what Harvard – and many other Ivy Leagues and colleges that boast a substantial endowment – is. And managing the fund’s returns is where Harvard’s major business interest lies.

The full price tag for attending classes at the Cambridge, Massachusetts school is $37,000 per year — over double what it cost to attend the school slightly more than two decades ago. Of course, this number doesn’t take into account the substantial amount of financial aid that the university typically extends to its students, but if every student who attended classes on the school’s Gothic campus paid their tuition in full, the total amount coming in to the school’s coffers would be somewhere between $200 and $250 million dollars per year.

A number to make many a smaller school envious, no doubt — but it pales in comparison to what the university considers its chief means of revenue generation, which is the management of its endowment fund. That means during the financial collapse that plagued the system in 2008, like all similar institutions, Harvard fell victim to economic realities and had to take extreme measures to stave off insolvency.

Unlike universities, the business model of large and aggressive hedge funds is notoriously volatile, and during the 2008 Financial Crisis, Harvard lost $11 billion on its net holdings, teetering on the verge of bankruptcy as its highly illiquid assets could not easily be redeployed to cover hundreds of millions of dollars in ongoing capital commitments to various private equity funds. The desperate hedge fund—ahem, academic institution—was forced to borrow $2.5 billion from the credit markets, lay off hundreds of university employees, and completely halt construction work on a huge expansion project, ultimately surviving and later recovering in much the same way as did Goldman Sachs or Citibank.

However, this focus on raising money might be counterproductive for an institution that wishes to remain atop the academic pile. There have been numerous assertions in the past ten years that Harvard primarily looks to attract students from wealthier families specifically because it anticipates substantial donations from them afterwords. Admissions spots themselves appear to be for sale – something that was mainly thought to be gossip in the past but was recently given more credence by the Daniel Golden’s book The Price of Admission.

According to The American Conservative, continuing such policies might see Harvard lose its good name in the coming years.

But if such claims are true, then Harvard is following an absurd policy, selling off its good name and reputation for just pennies on the dollar, not least because the sums involved represent merely a day or two of its regular endowment income. Harvard surely ranks as the grandest academic name in the world, carrying a weight of prestige that could be leveraged to extract far greater revenue at far lower cost of academic dignity.

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