Lately I’ve been having a little fun at Poor Old Harvard’s expense, twitting them about the self-inflicted wounds they’ve sustained due to the very widely publicized shrinkage of their endowment.
If you’ve been paying attention, though—as I obviously haven’t—you would know that Harvard does not stand alone from many other fancy-schmantzy elite schools in this regard. Indeed, it doesn’t stand out at all from a couple of other leading brand names that have somehow managed to miss out on most of the bad publicity. So here, for the sake of evening things up a bit, is a little chart that puts the Harvard endowment mess in some comparative perspective.
[Chart from the Daily Dartmouth. Hat tip to Jennifer Hochschild.]
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I’d rotate 90 degrees, ditch the goofy colors, and have the axis start at zero.
. . . and i would add the bars for traditional TIAA and for CREF.
Andrew, I agree about the colors and the axis starting at zero, but I like the angle. Anyway, blame Dartmouth, not me. And Dick, because you’re Dartmouth, Andrew and I blame you.
I think part of the issue with Harvard, lost on that chart, is that a lot of their losses haven’t been realized yet (is that the right term?) What I mean is, Harvard’s endowment has piles of money in stuff like private equity funds where the losses don’t ‘show’ until a set date. I don’t understand much of this stuff, but my impression is that Harvard’s losses are actually greater than they would seem from that graph.
“I think part of the issue with Harvard, lost on that chart, is that a lot of their losses haven’t been realized yet (is that the right term?) ”
Generally tax law distinguishes “realized” and “recognized.” When an asset is sold or exchanged by a taxable entity, the gain or loss is realized and recognized for tax purposes unless there is a specific non-recognition provision applicable. Of course, Harvard is a non-profit that is tax-exempt. Consider toxic assets held by for profit entities, such as subprime mortgage loans. Losses on such loans are not realized if not sold or exchanged. But how should such loans be treated on Harvard’s balance sheet? Should such assets be marked to market at least to give Harvard a snapshot of its financial condition? A lot of us private investors have had their securities decline in value in the past year. Some of us are reluctant to accept these losses and hold on, so that we haven’t realized our losses. We pray for a comeback as perhaps does Harvard. Harvard has taken risks over the years, as have many of us. But looking back, both we and Harvard may be better off than if we hadn’t taken such risks, unless we waited too long to “Tiptoe, Through the Tulips.”
As a follow up to my earlier comment, take a look at the Tax Prof Blog at
http://taxprof.typepad.com/
with an abstract of an article titled “Abolishing Realization and Adapting Market-to-Market Taxation.”
This concept of taxation had been proposed years ago but failed for many reasons, including lack of cash flow to pay taxes on increases in net worths.
However, this article is not (I realized) relevant to Harvard’s endowment as it is tax-exempt.
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