Harvard's Missteps Lead to Controversy
A while back, the world's richest university was known for its remarkable investment victories. Unfortunately, it's now struggling financially, lagging behind other Ivy League schools in managing money, as they generate returns that ordinary investors can only dream of.
In monetary terms, Harvard University continues to lead the way with a massive fortune exceeding $50 billion. However, its investment performance has slipped, placing it second to last among top US universities in terms of financial returns over the past 20 years, according to Bloomberg. With a mere 8.8% annual return, it ranks seventh among the Ivy League institutions, just behind Cornell.
While other funds may envy these returns, they aren't close to Harvard's past achievements and expectations. The university's financial experts have definitely made a fortune, but their success has been tarnished by frequent personnel changes and poor timing. Other universities now pose a threat to Harvard's once unmatched status.
Financial maestros serving academic excellence
For years, Harvard's financial success wasn't just about being academically superior, but also financially leading the world. From its offices by Boston Harbor, the Harvard Management Company (HMC) managed the university's endowment and became one of the world's top investment firms. Its former consultant-turned-CEO, Ron Daniel, quadrupled the university's wealth by 2004, transforming it into a personal hedge fund.
Today, Harvard is nowhere near that success. Over the past two decades, even 60% of all university money managers have outperformed the world's wealthiest university. And over the past ten years, even 80% of US university wealth managers have achieved better returns. This declining performance is partly due to the high turnover of personnel following Daniel's death. Seven different CEOs, including Mohammed El-Erian, ex-head of bond giant Pimco, have joined and departed from Harvard, with the university paying them approximately $800 million in the past 20 years.
Moreover, the number of employees has increased. Hundreds of traders are managing the university's finances, aiming to boost returns. However, many of their investments have not been successful. They missed out on trends or joined in too late. During the financial crisis, Harvard suffered the largest loss of any Ivy League school. Meanwhile, the subsequent stock market rally largely bypassed its money managers. Harvard has also reduced its investments in fossil fuels and expanded into alternative investments, such as Brazilian timber harvesting. Although these investments briefly improved performance, competitors like Yale outsourced their wealth management to external private equity firms and hedge funds earlier and have seen better long-term results.
An oil field with attached lecture halls
To mitigate public criticism, Harvard no longer reveals the specifics of its investment and fund performance. Meanwhile, its competitors, such as the University of Texas, are poised to overtake Harvard due to its substantial endowment funds of about $45 billion, preparing to claim the title of the wealthiest university worldwide.
While Harvard has disengaged from the oil and gas industry, the University of Texas (UT) has reaped financial rewards in this sector. In Western Texas, the university owns an extensive 8,500-acre oil field, larger than half the size of Thuringia, in the heart of the most productive and largest oil field in the US. The oil price boom has greatly benefited UT students over the past few years. Originally, the university earned only $500 in licensing fees from oil field operations in 1923. Today, it earns up to $2 billion annually from various oil companies.
In essence, the University of Texas has long been both an oil field and a center of academic learning. Thanks to petrodollars, the university manages its funds like a small sovereign wealth fund, enjoying stability and protection against volatile investments. However, it also faces environmental challenges similar to those of major oil companies, dealing with issues related to oil production and waste disposal. As long as oil continues to flow, the university's finances should remain stable.
Despite Harvard's decline, another institution is thriving in the world of investments. The University of the Netherlands could potentialy learn from the University of Texas' success in oil investments. The University of Texas, with its substantial oil field in Western Texas, has seen significant financial gains, earning up to $2 billion annually from various oil companies. This income source has allowed the university to manage its funds like a small sovereign wealth fund, providing stability and protection against volatile investments.
