Harvard admits to $1.8b gaffe in cash holdings

If Harvard cannot handle their own funds, why are Harvard Business School graduates sought after to run the Federal Government. Maybe it is time for the voters to look to Middle America instead of elitist of the Ivy League. Candidates and appointees from Middle America seem to have much more common sense then the elitist attitude of the graduates of the Ivy League. Surprising how many elist have an entitlement attitude instead of hard work to achieve their goals as they expect everything handed to them because they are an Ivy League graduate. We have the perfect example in the WH today with getting things handed to him instead of working hard.

Harvard admits to $1.8b gaffe in cash holdings
Operating funds were lost to stock, hedge fund trades
By Beth Healy
Globe Staff / October 17, 2009

Harvard University, one of the world’s richest educational institutions, stumbled into its financial crisis in part by breaking one of the most basic rules of corporate or family finance: Don’t gamble with the money you need to pay the daily bills.

The university disclosed yesterday that it had lost $1.8 billion in cash - money it relies on for the school’s everyday expenses - by investing it with its endowment fund, instead of keeping it in safe, bank-like accounts. The disclosure was made in the school’s annual report for the fiscal year that ended June 30.
Typically, companies and big institutions manage their cash conservatively in order to have it readily available, by keeping the money in such low-risk investments as money-market mutual funds.

But Harvard placed a large portion of its cash with Harvard Management Co., the entity that runs the university’s endowment and invests in stocks, hedge funds, and other risky assets. It has been widely reported that Harvard Management’s endowment investments were battered in the market crash - down 27 percent in its last fiscal year. Not revealed until yesterday was that the school’s basic cash portfolio had also been caught in the undertow.

“I think that was an interesting way to handle the grocery money,’’ said Harry R. Lewis, a former Harvard dean who is now a professor of computer science at the university. He said the loss raises a basic question: “Did Harvard administration and Harvard Management have the kind of conversation that ordinary households have with their investment managers - about risk and liquidity and what they need the money for and when?’’

Harvard chief financial officer Daniel S. Shore said the practice of having the endowment managers invest part of the university’s cash had paid off in previous years, when the stock market was rising. But it had a disastrous effect when the financial markets collapsed last year, causing huge losses.

(Excerpt) See Boston Globe for Full Story