Some Further Notes on the ‘Financialization’ of the American University
In recent weeks we have been keeping an active watch on the particular corner of the story of the financial crisis having to do with Harvard’s stunning $10 billion-plus endowment drop due to its highly risky investment strategy. Here are a couple of other notes to round out the still emerging picture. The first further illuminates that Harvard’s corner in this story may not just be one about excessive “risk” taken but something closer to a scandal in the making given a lack of transparency and accountability within the ranks of its administrative bureaucracy and money managers. The second, peels back this little corner of the financial crisis to remind us that it is likely much bigger than the focus on the Harvard story, in specific, has tended to suggest. As the second item makes so clear, if Harvard’s endowment hit has obviously been the most noticeable, it would be wrong to paint its investment strategy as somehow anomalous. Chalk item two up to another chapter in the story about the growing “corporatization” or, perhaps better, financialization of the American higher education system:
1. As the Boston Globe reported earlier this month a new employee at Harvard Management, Iris Mack, warned then university president Lawrence Summers of the ticking financial time bomb the university might be facing. In a letter date May 12 of that year, Mack expressed to Summers the “troubl[ing] and surpris[ing]” nature of the things she had seen as a quantitative analyst with Harvard Management. The particular concerns she expressed—including, according to the Globe, through reiterating them in later emails and conversations—was not only that the university was too heavily invested in derivatives but that her colleagues also seemed to possibly be engaged in insider trading. Despite having asked Summers to consider her communications while keeping her confidence, two months later, Mack—herself a doctoral alumnus of Harvard’s mathematics department—was suddenly fired by chief of Harvard Management, Jack Meyer.
2. In a recent email to her campus community, Shirley Tilghman notified her fellow Princetonians that her university was facing a loss of some $5 billion in endowment funds, reflecting a 30 percent drop from $16.4 to $11.5 billion (reported on here). Like Harvard, which has recently reported that it is expected to slash its operating budget quite significantly (including , through instituting a fresh round of layoffs of workers in the clerical and other service sectors; more on this here), Princeton expects cuts to its budget in the range of $90 million. (No word yet on whether major layoffs in its service sector are planned). One might think that it has only been the elite Ivy League institutions that have been so hard hit, given the disproportionate amounts they generally have to invest. This, however, is not the case. According to a recently completed study by the Commonfund Institute in Wilton, Connecticut, in a survey of 629 educational institutions, for the period from July 1 to December 1, 2008 the average drop-off in endowment size was 24%. As Bloomberg news’ Gillian Wee recently noted, this compares with an average decline of 29% in the S&P 500. For the Commonfund Institute’s report click here.