By: Jonathan Yates
Contributor, Stock Traders Daily
your risk and realize opportunities regardless of market
direction or economic conditions, and do it without
sacrificing time or lifestyle.
Trend Tracker. This is the most powerful tool
on the Market. It allows individual investors to
take advantage of their competitive
advantages. We can control our risk better than
institutional investors ever could, and Trend tracker
gives us the opportunity to do it without making
(La Jolla, CA) In mid-2008, the
for Harvard University stood at $36.9 billion, the
richest for any school in history. Investment declines
now have Harvard, in the words of one recent article, in
danger of “…not being able to keep its lights on.”
There are lessons for all in this stunning reversal.
The first is that Harvard lived beyond its means,
counting on investment gains to cover one-third of its
$3 billion annual operating budget. Like day trading
tech stocks in the 1990s and flipping houses in the
2000s, Harvard is paying the price for its greed in
foolishly relying on investments for fixed expenses.
Others, like Dartmouth, rely on investment income to
cover even more of its operating costs.
Next, Harvard invested where there was a lack of
liquidity and transparency. While $36.5 billion is
impressive, it is smaller than the Vanguard 500 Index
Fund and could have easily been invested through
trading programs and
investing options with complete access to capital,
unique features and a proven track record. Harvard
instead chose to invest billions in private equity,
hedge funds and commercial real estate ventures.
Due to the lack of transparency, Harvard has no idea how
much is lost and the value of its endowment, now
estimated around $25 billion. Harvard has warned,
however, that it has fallen another 30%. But others put
the loss at 50%. As private equity groups and hedge
funds are not publicly traded, portfolio value is set by
the management of the groups on a quarterly basis.
While the value of its endowment is uncertain one thing
is definite: Harvard lacked in risk control,
“the most powerful tool in the Market,” according to
Tom Kee, President and Founder of Stock Traders Daily.
From here, the lack of liquidity is further devastating
Harvard’s endowment. The only buyers for private equity
assets are, oftentimes, other private equity investors.
Knowing of Harvard’s predicament, only low ball offers
are being made. Harvard is now in the position that Tom
Kee has cautioned about,
when fear and greed prevail, “…and investors stop paying
attention and let emotions take over.” One never
wants to find themselves like Harvard, having to sell to
the entity that sets both the “bid” and “ask.”
Harvard had to float $2.5 billion in bonds in December
2008 to meet operating costs. The yearly interest for
its debt of over $6 billion is $517 million through
2038, with the credit market now valuing Harvard’s
creditworthiness as “junk” (about 7 points over
Treasuries). Now Harvard’s endowment has to produce
over $1.5 billion annually to meet its share of the
operating budget and interest expenses. If the
endowment is $15-20 billion, as some have reported,
almost a 10% return is needed to just break even.
Not only is Harvard unaware of its endowment size and
unable to sell assets, it is obligated for $11 billion
in unfunded commitments to private equity groups, hedge
funds and real estate concerns. Like Goldman Sachs (NYSE:
GS) and JP Morgan (NYSE:
JPM), Harvard is also looking at billions in
commercial real estate losses. Unlike Goldman, JP
Morgan, Morgan Stanley (NYSE:
MS) and Bank of America (NYSE:
BAC), however, Harvard will not receive a taxpayer
bailout to allow it to return to prosperity.