No Return on Investment

Harvard’s endowment has declined over 27 percent in the past year, and the billions of dollars lost in the credit crunch demands attention. Yet The Boston Globe and others who call for a fundamental change in Harvard’s investment philosophy as a result are themselves off the mark. Insisting upon conservative money management looks good now, but the benefit of hindsight will always change the evaluation of an investment. Smart management demands flexibility—this does not preclude conservative investment, but the willingness to take risks is a critical characteristic of successful money management. Such risk can, of course, generate significant return, as evidenced by the success of Harvard’s managers before the credit crunch. A bad episode (in this case historically bad) will naturally give pause but should not force Harvard to abandon more risky investments in the future if such investments are the smart choice. The entire Harvard community and even all of Greater Boston feel the loss when financial woes strike Harvard. This shared burden, however, cannot justify a policy of forced, unnecessary conservative investing. The community may suffer with Harvard’s losses, but it benefits from its gains as well. Struggles in Cambridge are also being felt nationwide—Harvard was not the only major employer and investor to suffer in this crisis. Higher risk investments often yield high returns and enlarge the endowment, and such gains will help the community emerge from the doldrums. If anything, this situation reinforces the folly of long-time demands by advocates such as Senator Charles E. Grassley, who until the crisis demanded higher spending from Harvard’s endowment. For many, Harvard was being too conservative even in the boom years; now it is more fashionable to criticize the university for its profligacy. The Allston project, with its new science complex, for example, was hailed as visionary—until the financial crisis put it on hold. Even the Boston Globe editorial admits the complex “will transform Allston” when it can be built. Such decisions are easy to call foolish after the fact, but they were sensibly made given the information at hand, and their objectives remain as laudable now as they were before. Critics can tell Harvard how it should invest and complain about its endowment loss, but Harvard’s investment practices are still fundamentally sound. Harvard should be allowed to look out for its own interests without backseat advisors—especially as such interests will ultimately benefit the greater community.