Harvard's endowment lost $350 million in the Sowood blow-up. The amount is a small dent in Harvard's well-endowed $29 billion coffers (why did we need to pay $40k/year to go there again?) but comes from one of Harvard's own.
Sowood was founded by Jeffrey Larson, former manager of Harvard's foreign investments. Larson helped Harvard become the well-hung giant it is today, and Harvard returned the favor by investing with Sowood. The 'Vard netted three years of gains before taking a $350 million bath.
Some argue that making crappy investment choices like Sowood underscores the fact that Harvard fund managers are overpaid. Larson, for instance, raked in $17 million in 2003, when the endowment returned just over 10%.
Why Harvard Is Smarting [Wall Street Journal]
Posted by , Aug 01, 2007 12:09PM
losing 120 bps of your entire capital on one investment is not exactly a "small dent" particularly when that pool of capital is a university endowment
Posted by , Aug 01, 2007 12:16PM
since it's a university endowment where the president is a feminazi ... i say wealth redistribution is in order. send the hah'vahd profs to reeducation in the countryside.
Posted by Random Banker , Aug 01, 2007 12:32PM
See, the sad thing about a guy like you is, in 50 years you're gonna start doin' some thinkin' on your own and you're going to come up with the fact that there are two certainties in life: one, don't do that, and two, you dropped 150 grand on a fucking education you could have got for a dollar fifty in late charges at the public library
Posted by Migster for R Banker , Aug 01, 2007 12:38PM
Banker, stop stealing from Good Will Hunting. The buck fifty in late charges does not cover all the sweet keggers with pseudo intellectual chicks you get at Harveezah. I do agree however, Harvard is overrated.
Posted by Anonymous , Aug 01, 2007 12:44PM
A Harvard degree goes a long way. And the education isn't bad either. Hahn even landed a job as an investment banker... I'm guessing he reached Associate level at least? Given certain reasonable assumptions, a Harvard education can be shown to have a positive expected NPV. So the question isn't why did Hahn spend 40k/yr at Harvard or should he have spent it ... The question is, how did he go from Harvard minted ibanker to online tabloid writer? Does a Dealbreaker career really pay that much? Does anyone know what kind of bonuses Dealbreaker is paying out this season? Please send us tips regarding the median Dealbreaker bonus for first year bloggers!!
Posted by nha , Aug 01, 2007 1:06PM
anonymous 12:44...i have been curious about that myself.
send any leads you have to ImGoingToJumpOutMyWindowIfYouActuallyMakeMoreMeThanMe dot com
Posted by , Aug 01, 2007 1:07PM
yes, where is BonusBumper for DealBreakers?
Posted by Billy Sol Skilling , Aug 01, 2007 1:12PM
Just heard Bear took two hedge funds into Chapt 11...
Damn I'm jealous!
Posted by Muffie Benson-Perella , Aug 01, 2007 1:13PM
That's absurd!
Posted by Bulging Bracket , Aug 01, 2007 1:18PM
Since alternative assets are supposed to be risky and uncorrelated with the market, losing 120bps when the Dow and S&P recently crossed all time highs demonstrates good diversification. Hedge funds are supposed to blow up, and your portfolio target should expect to have a manager blow up from time to time, just as managers have to expect bets to go wrong.
The problems come when managers and clients don't plan to handle discontinuities. Your hedge won't work like the model when you need it, just as your line of credit won't be available when you need cash to keep your firm afloat. We all know how screwy math gets at discontinuties and singularities in functions, so plan for it. LTCM, Enron, Amaranth, et al. should have been examples for Sowood, but appropriate risk management cuts returns, so they didn't do it.
If you claim to make alpha and provide real value, your strategy should be somewhat more sophisticated than "we'll borrow 7x our capital and bet on black, making up for low expected value with leverage". Disconnecting your phones or trying a Jedi mind trick are not effective strategies for handling a margin call, and having your fund blow up because your lenders marked to market is really, really stupid.
As to the value of Havahd - rolodex and brand name. Same with B-school. You get much more actual education at an elite engineering school (where you take real courses and some even have a curve centred on 2.0 instead of 4.0).
Posted by Billy Sol Skilling , Aug 01, 2007 1:21PM
http://www.iht.com/articles/ap/2007/08/01/business/NA-FIN-COM-US-Bear-Funds.php
Absurd??????
Posted by Enron BK Expert , Aug 01, 2007 1:23PM
Try Chapt 15, Billy (love the name!) not Chapt 11.....
Good scoop, though!
Posted by Ramblin' Wreck , Aug 01, 2007 1:24PM
BB, if you aren't an engineer, then thank you for acknowledging the reality of Ivys...that you are not paying for the education, but the contacts.
Posted by , Aug 01, 2007 1:34PM
contacts from prep school are more important than the ivies
Posted by Bulging Bracket , Aug 01, 2007 2:18PM
B-School v Ivy v Prep School contacts... the more explicitly you've paid for contacts, the less useful they are. This is especially true when you need to use second hand contacts - your college friend's dad is much less useful than if you had met the guy at the yacht club. Best contacts are made personally and recreationally - summer house, club, skiing...
People from Ivies are smart, but unfocused and no skill. Cal-Tech kids create models and run them in their heads, and still know that they were the dumbest kid in their class. Somebody who passed the CFA on their 3rd try still thinks he's a genius cause the CFA is, like, hard, and there's some math beyond multiplication on some of the questions.
Posted by Harvard student , Aug 01, 2007 2:50PM
Believe it or not, Harvard does actually have legitimate concentrations like Computer Science and Engineering. It's not all Classics and Hist. & Lit. Take wealthy, socially aware, contact-driven students and add Electrical Engineering or CS Probalistic Analysis and Algorithms and you beat a Cal-Tech kid handsdown.
Posted by anon , Aug 01, 2007 3:04PM
Don't be silly Harvard student. Cal-Tech runs circles around you.
Posted by , Aug 01, 2007 3:06PM
its true half the guys who end up in finance are the ones who were at the bottom of their applied math classes.
either that or they are intentially self-effacing. how many times one of these guys has told me "yeah i was near the bottom of my class at chicago..." [or wherever]
Posted by Bulging Bracket , Aug 01, 2007 4:04PM
Anon: it's mostly true. A love of math only carries so far, especially if you have an interest in finance/business. The supersars are geniuses who do math in their spare time in college, while the guys in finance read the journal and went to parties.
Also, it's fun to rub into the faces of Ivies that my 2.0 is regarded better than their 4.0. You've got to work really hard just to get a 2.3 in engineering/math, whereas you've got to try to fail to get a 3.7 at Havahd.
Sure there are a few math kids at Havahd - BillG dropped out of that - but the number is ridiculously low. Much better to go to MIT and crash Havahd parties than to have to explain to people that you were in the one program at Havahd where there are actual grades and actual right answers, which is why you're the only person in your graduating class without a 4.0
Posted by , Aug 01, 2007 5:31PM
Not quite, 50% of Harvard students have below a 3.6, and that's a figure from 2004 before starting an initiative to counter grade inflation. Now, the average is closer to 3.2.
Posted by Calgary Schmooze , Aug 01, 2007 5:59PM
I get a chuckle from the people who are able to figure out what I mean when I tell them that I graduated Summa Cum Minima in engineering. Usually, they also happen to be math/engineering types who got shitkicked by their chosen programs as undergraduates.
Posted by Bulging Bracket , Aug 01, 2007 6:16PM
Calgary: got to love CEAB requirements of a 71 centred curve. I love waterskiing!
Posted by Calgary Schmooze , Aug 01, 2007 7:12PM
Bracket: I was just too dumb to let go of the rope. Got dragged through the wake many times... definitely more like "body surfing the curve". All that work for a piece of steel pipe someone worked with an angle grinder!
Posted by y07 , Aug 01, 2007 10:20PM
The real reason these clowns left Harvard was because they were too humiliated by Swenson running circles around then for $1mm /year. Now, with this blowup, the new managers will get to enjoy the same fate.