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Wily Quakers Outsmart Crimson Again, Penn Endowment Down 15.7% In 2008, Half Of Harvard Collapse
Who'd a thunk the IRR on the new, and oddly phallic Huntsman Hall would be quite so attractive. Well, it wasn't really positive, but these days down little is the new killing it (absent being too big to fail or too UAWed not to have a 30 day successful and gov't backed stalking horse auction). The Philadelphia university is expected to see it endowment decline by only 15.7% in the fiscal year ending June 2009, a stark contrast to bigger and "smarter" rivals such as Harvard and Yale, which are set to be down 30% and 25%, respectively.
Turns out the street smart Whartonites, who know to milk "legendary" financiers such as Saul Steinberg and Jon Huntsman (and maybe Steve Wynn although the jury is till out on that one) for new, ivy-faced buildings just ahead of...stressful corporate events, anticipated the events of last year better than most. Reports the WSJ:
Pennsylvania's endowment benefited from its decision in early 2008 to
reduce its publicly traded equity positions and to invest some of that
money in Treasurys, one of the rare assets to appreciate in value
during 2008. Pennsylvania also says its equity managers beat their
domestic and foreign benchmark indexes by more than 10 percentage
points.
"By the end of 2007, we were starting to get concerned about
systemic risk," said Kristin Gilbertson, chief investment officer of
the endowment. "Our long-term plan was to reduce our equity exposure
and diversify our portfolio. Given our concerns, we decided to
accelerate that move."
At the start of 2008, 53% of the portfolio's assets were in public
stocks. By June 2009, that figure was down to about 43%, and about 15%
of the assets were in Treasurys.
Ms. Gilbertson said the large Treasury position enabled the
endowment to meet capital calls from private-equity firms that left
their peers scrambling to raise cash. Many other endowments had
expected to pay these cash calls with distributions from their
private-equity partners. When these dried up, endowments were forced to
sell stocks or other assets at a time of steep declines.
Also, Gilbertson's disclosure on PE posture should concern quite a few private equity managers:
Ms. Gilbertson said. She added that Pennsylvania isn't looking at
buying private-equity partnerships in the secondary market because she
thought recently raised funds didn't look attractive.
Is someone starting to realize that 5x leverage for 3 years at 8%, with an exit based solely on trimming some muscle here and there will no longer generate 20% IRRs? If this epiphany spreads to other endowments, either educational or pensional(sic), it will make the lives of the Steve Rattners of the world so much more difficult, in both finding garbage companies to burden with excessive leverage, and have Jefferies refi only to have the firm's restructuring group pick up the baton within a year, as well as to provide kickbacks for redirecting pension funding. On the other hand, in that parallel universe Attornies General would be able to avoid marginal distractions and actually go after the real perpetrators of major market improprieties.
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Wily Quakers... haha. Nice hed on this post. Still laughing.
http://news.yahoo.com/s/ap/20090810/ap_on_re_la_am_ca/lt_drug_war_stolen...
On the other hand, in that parallel universe Attornies General would be able to avoid marginal distractions and actually go after the real perpetrators of major market improprieties.
WhoT!
Real perpetrators of major market improprieties - I had an Aha moment.
Remember the hundreds of trillions of dollars in credit default swaps?
A credit default swap (CDS) is a swap contract in which the buyer of the CDS makes a series of payments to the seller and, in exchange, receives a payoff if a credit instrument -- typically a bond or loan -- goes into default (fails to pay). Less commonly, the credit event that triggers the payoff can be a company undergoing restructuring, bankruptcy or even just having its credit rating downgraded.
These derivatives are private agreements and could include any number of variables including a low stock price as a trigger to pay out. Banks that underwrote those derivatives stand to lose million, billions, or trillions if they pay out (AIG) while for years they thought they were just printing money on low probability events they didn't reserve for. These derivatives could take down the entire banking industry (pump or go bankrupt).
For banks that also can influence securities prices by increasing share price by buying up shares (SLP or not), it might be a much cheaper option to buy up security prices than allow the trigger and pay out on the derivative. It is probably the reason the credit rating agencies are not downgrading securities - it would trigger credit default swaps, so whoever is on the other side of the trade is essentially screwed.
It's difficult for rating company's to keep a good rating on junk stocks when they gravitate toward penny stocks, so I am assuming there is an underlining tug of war going on right now on the triggers for these agreements between banks - banks underwriting the derivatives must be winning as the stock price increases & lack of downgrades likely preference the underwriters with connections.
This means there is rampant speculation by banks - the $13B AIG payout is an example as Lloyd stated they had no exposure to AIG, so the CDS was not some type of risk management hedge - just a ridiculous casino bet. Obviously this creates a huge moral hazard as GS would then have a $13B incentive and conspire to bring down AIG. This is probably happening with many other companies/securities.
I would investigate these derivatives, their triggers, and motivation/actions by banks to make their own derivatives pay off - it might highlight the real perpetrators of major market improprieties.
Let's Go Quakers !
Wily Quakers.....outstanding.
I preface this by saying, many, many hours spent proofreading as an articling student - sorry tyler its a bad reflex.
"Attornies General"
'Tis true it's a typo, but even as such it is better than the goofy "Attorney Generals" mistake.
Poor Tyler was probably recently in a fight, and just had trouble concentrating.
I'm more interested in Treasurys vs. Treasuries. The former looked wrong to me, and it's not found at Oxford.com, Dictionary.com, OneLook, or even Wikipedia. But Google says the two spellings are almost equally used.
Oh wait, sorry. I thought I was at Language Log there for a sec...
actually it is attorneys general but don't tell anyone. Also the next iteration of the blog will be called Zero Grammur, will be written in demotic cursive and comment threads will be populated by republicans and democrats (and the occasional Nader fan) spewing obsenities at each other over text corrections.
you're such a fucker i feel like we're already chums in meatspace
The correcting forces of the universe strike at whatever weakness they can find without reguard for whether it matters or not. :))
there are still parts of the world whose correcting forces smite out those who practice annoying trivial correcting
Yes, you're right, noting the e before the y (look up donkey, pedantic compulsive editors). Law is weird though, e.g., "pled" v "pleaded".
One Occasional Nader Fan
Apparently the NY Times prefers "Attorneys General" today.
http://www.nytimes.com/2009/08/11/business/media/11adco.html
Economic benefit? Don't PE's get to avoid Sarbanes-Oxley? That should provide some economic value added, sheeit.
Let us not forget the many virtues of true Pennsylvania Dutch birch beer, either. Not as much fun as the real thing, but oh-so-refreshing on ice.
A childhood treat was to ride my bike to a local luncheonette and get a birch beer. Great memories! Danke.
quakerstate
The Rich says"
good articles;
href="http://www.iamned.com" target="_blank">my newest bookmarked finance website
Private equity is dead.
No institutional trader will dare touch anything that cannot be instantaneously sold via a mouse click when "support" is broken on a 5-min. chart.
Virtually everything bought and sold from here on out at these giant institutions are highly liquid, easily traded stocks and bonds only.
One day, we will see some of these huge funds Hi-Fi trading SPY and TLT only. Those will be the only investments allowed.
That's the truth. Yield to maturity? Who will have it that long?
Too UAWed to fail. Good one.
We can put up Mike Milken's picture back up at the entrance of Steinberg Dietrich Hall if things get really tough. The old one with the toupee, before things got ugly. Way back when.
"Aug. 11 (Bloomberg) -- China’s new lending in July fell to less than a quarter of June’s level as banks sought to limit credit risks and the flow of money into stocks and property."
reality might set it sooner than many expect; time to pick the best seats and watch...
The legitmization forces will get paid. Those poor benign academics will always find huge money if they conform enough. Leveraging is morally illegal. 1 dollar 1 vote. Endowing some with the capability to go into public purse and gamble is logically and morally the equivalent of saying some people should have joint custody of your bank account and some shouldn't. Call a hedge fund and tell them you are taking their Bentley out this weekend. If they try to say no just tell them you have a license so you are deemed sophisticated enough to have access to thier resources by your local state government. It'll be alright. You won't take undo risks. Trust me.
The funny thing is, Penn is so very proud of their move into Treasuries, but then sold the Treasuries to do what? Meet PE capital calls. LOL. They'll see losses on par with Harvard. Just you wait.
go Quakers
Just was in Phila. the other day; great bacon, egg and cheese sandwich on Amorosa roll followed up by a soft pretzel; all from a doggy cart for $3.50 at 36th and Spruce
Go to love it!
wacha doin in wes philly ayh? takin in sum of oar finest health care ayh?
when Obaama puts in da new rules yous gonna be on da outs - alright? better fill up on the cheesesteaks and take a hike!!
I just find it hilarious that the Harvard profs thought the guy who was managing their endowment, and making billions for them, was making too much money, and they "could do just as well". I don't think they've had a +5% year since taking over.
Just don't forget who used to be President of Harvard, and who pushed, pushed, pushed for them to leverage up their endowment.
No other than Larry Summers.
Ain't it great that he's now advising our President on economic policy?