Vanity Fair digs into what happened to Harvard's endowment (HT: FS). The last time blogged about this, back in January, I concluded
Perhaps the take away point is that if Harvard was forced to sell, they would see very large losses, but that's not very informative or useful given that they won't be forced to sell.If I wasn't downright wrong, I was certainly way off the mark:
[Harvard] asked the hedge fund manager to look at Harvard’s finances and assess the extent to which its endowment will be able to keep pace with its immovable costs. The hedge fund manager’s conclusion: “They are completely f***ed.”It's not clear if they've been forced to sell much, but they appear to have taken on a lot of debt to avoid it.
it’s pretty clear Harvard was desperate. In 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 2038This sort of has the feel of Warren Buffet defaulting on his credit card - there's just no way this should've happened. But, as Scott Sumner said,
If you have a rich backstop it’s relatively easy to come up with investment strategies that will usually (not always) make you look like a genius.Apparently, that's exactly what Harvard did, they just got caught by the "not always" clause.