Harvard as Hedge Fund: Harvard Replies

The reaction to my long Meritocracy cover story followed a very unusual pattern.

On the one hand, the piece received just a fraction of the major links and web discussions which several of my previous articles have attracted, and many of these seemed curiously abbreviated or oblique, sometimes describing my article as being quite important without explaining why it was important or even indicating what it said. Perhaps the 30,000 word article was just too long for most people to have fully read, causing them to focus merely on the points I made in the first few sections, and they will eventually get around to reading the rest.

But although the links and commentary were few, the traffic itself was enormous, at least for me. During just its first week, my Meritocracy piece attracted several times the total pageviews that my influential Hispanic Crime article had received during its first full year, along with over 2000 Facebook Likes and many hundreds of Tweets. There were also numerous comments, and some of the commenters described it as “the article which everyone is talking about” and presumably reading. But apparently few people are writing about it, at least in other than anonymous commenter fashion.


I will reserve further discussion of my Meritocracy article for the future. For now, the more immediate story is the remarkable sudden response to my 1300 word Harvard as Hedge Fund sidebar.

Late Friday afternoon, the piece was prominently featured on the Business Insider and CNBC websites, and soon redistributed on twitter by a large throng of individuals, some of them prominent journalists. MSNBC’s Chris Hayes tweeted “very jealous I did not write this article” to his 175,000 followers, Pulitizer Prize winner Bart Gellman described it as “eye opening,” and New York Times economic policy reporter Annie Lowrey sent the phrase “Harvard as a giant hedge fund plus a wee research university.” All in all, I’d think that mention of the piece may have reached a million or more Americans over the weekend.

Public scrutiny brings results, and on Sunday afternoon Kevin Galvin, Harvard University’s Senior Director for Communications, emailed TAC an unhappy letter to the editor, which he had apparently drafted in consultation with Lex Suvanto, the Chief Marketing Officer of the Abernathy MacGregor Group, Harvard’s external strategic communications firm. It appears that the urgency of defending Harvard’s reputation as America’s foremost “hedgefundersity” was simply too great to wait until Monday morning. I provide below the letter, together with my own reply.

Mr. Unz,
Your recent article regarding Harvard was brought to my attention and, leaving aside the premise entirely, I wanted to point out a few inaccuracies and request that they be corrected.

You base your calculations regarding top-paid managers at the Harvard Management Company on data that is eight years old. It has been well-documented that compensation policies at HMC have changed significantly in the intervening years and the figure you use for HMC compensation is so badly out of date as to be misleading in an article that is trying to make a case about contemporary circumstances.

While writing about the overall University’s finances, you make comparisons to the faculty of only one School, and the figure you cite for that area of the University is not accurate. The number of full professors at the University, which would seem to be the proper point of comparison, totals about 1,050. The number of full professors in the Faculty of Arts & Sciences totals about 550. Of course, that’s still apples to oranges if you are comparing it to 2004 data for HMC.

You also state in more than one instance that the institution was “on the verge of bankruptcy” following the global financial downturn of 2008. That is obviously untrue: Even after that tumultuous fiscal year HMC reported that the endowment totaled $27 billion.

Finally, at the end of your article, you seem to be trying to make the case that an institution of higher education with the resources of Harvard should help deserving students defray the cost of their education. I think you must be aware of Harvard’s robust financial aid program as you make passing reference to it higher up in the piece, but you leave the impression that the University has done nothing to address this topic. The details of the program show that since 2004 Harvard has dramatically reduced the amount that families are expected to pay to send a child to Harvard College. Harvard will spend $172 million on financial aid this year, and it has a policy of “zero contribution” from families with normal assets making $65,000 or less annually. Families with incomes up to $150,000 will pay from zero to 10 percent of their income, depending on individual family circumstances.

I hope that you will be able to clear up some of the misconceptions created by your piece.


Kevin Galvin
Senior Director
Harvard Public Affairs & Communications

My Reply, sent to Kevin Galvin of Harvard University and Lex Suvanto of the Abernathy MacGregor Group:

Dear Mr. Galvin,

Thank you for your letter to the editor disputing certain aspects of my article “Paying Tuition to a Giant Hedge Fund.”

First, despite your claims to the contrary, Harvard’s extremely difficult financial situation during the 2008 Financial Crisis was widely reported by the major media, including in a February 2009 cover story in Forbes. That article described Harvard as “desperate for cash,” “begging for a return of money,” and in a “cash-raising panic.” According to Forbes, Harvard’s “multibillion-dollar bet on interest rates” had gone sour, and the university was getting margin calls for additional liquid collateral, collateral which it did not have. Furthermore, Harvard was burdened with $11 billion in ongoing capital commitments to private equity funds, and had no sure source of cash to cover these in a falling market. The endowment faced the classic problem of a mismatch between short-term liabilities and long-term assets, worsened by the collapsing market values of those illiquid assets. Hedge funds or investment banks frequently fail for exactly this reason, but such financial death spirals are less common for academic institutions.

Some investment firms such as Bear Stearns, Lehman, and Washington Mutual went under during the Financial Crisis, while the Wall Street Bailout saved others such as Morgan Stanley, Citibank, and Goldman Sachs. As a byproduct of the Bailout, asset prices and financial markets stabilized, allowing Harvard to tap the international bond markets for $2.5 billion in late 2008 and survive. But even so, Harvard’s losses totaled $11 billion for the year, while the university’s huge new debt burden required annual interest payments of $88 million, more than the combined salaries of all full professors in the Faculty of Arts and Sciences.

As a university, Harvard is rapidly approaching its 400th anniversary. But I suspect that the average life expectancy of heavily-leveraged hedge-funds is probably a decade or two at the most.

Regarding some of your other points, you are absolutely correct that my 2004 figure of $78 million in compensation paid to Harvard’s top five fund managers was specific to that year and that such compensation has varied considerably over time. For example, in 2003 Harvard’s top managers were paid $107 million, while in 2005 their pay fell to just $57 million. Then in 2008, the year in which they lost $11 billion and brought Harvard to the verge of bankruptcy, their pay dropped to merely $27 million. Over the last few years, their combined compensation seems to have stayed roughly in the $20 million annual range; meanwhile, Harvard’s aggregate net investment loss during the last five years has totaled over $6 billion. And for 2004, the year for which I was making the comparison, Harvard’s Faculty of Arts and Sciences had 454 full professors, a total which I described as “approximately 450.” You are correct that the number has risen somewhat since then..

Given the thoroughness of your response, I must assume that you and your staff otherwise concede the accuracy of all my remaining factual claims, though you may certainly dispute their interpretation.

As I pointed out in my piece, the total net tuition annually paid by Harvard’s 6600 undergraduates is absolutely negligible in comparison to Harvard’s annual income or expenses, let alone Harvard’s vast endowment, and its disappearance would have no noticeable impact on the university’s finances. In fact, I suspect tuition income might even be less than just the annual interest which Harvard owes on the billions of dollars worth of bonds it sold to avert bankruptcy in 2008. Therefore, I see no logical reason why Harvard should not simply eliminate its entire complex and confusing machinery of “financial aid” by simply eliminating its entire undergraduate tuition.

Finally, I was rather surprised that you chose to focus all of your attention on my short sidebar analyzing Harvard’s finances rather than discuss my main 30,000 word cover story, The Myth of American Meritocracy, which strongly suggests a clear pattern of ongoing racial and ethnic discrimination in Harvard College admissions. I have already distributed a summary of some of my major findings, and this has been published on various websites, including that of Steve Hsu, a professor of theoretical physics. Earlier this year, Prof. Hsu had been selected by The New York Times to discuss the problem of racial discrimination against Asian-Americans in elite university admissions in their forum on American higher education.

I will be very interested in receiving Harvard’s official response to these very serious charges of racial discrimination in Harvard admissions policy.

Sincerely Yours,

Ron Unz
Publisher, The American Conservative



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