Keep the endowment. Spin off the university.
Ethically and academically, 2023 has been a bad year for America’s most richly endowed university. The U.S. Supreme Court ruled that Harvard discriminated against Asian applicants. Major donors have mutinied after anti-Semitic incidents on campus. Can Harvard be saved? Here, I imagine some guidance from the university’s investment advisers.
Dear Board of Overseers,
Harvard has been described as a hedge fund with a university attached. This is the literal truth.
As endowment-fund managers, our core business is accumulating and growing enormous sums of our clients’ money: in Harvard’s case, $50 billion and rising. In the past, our university division has understood and accepted the primacy of our accumulate-and-grow mission. That’s why being connected to a wealthy donor enhances an applicant’s chance of admission to Harvard by a factor of nine.
We can all take pride in the university’s strategic use of the admission of wealthy but otherwise unqualified students to bulk up our endowment fund. But in recent years, the university’s decision making has imposed serious reputational and litigation risk upon the fund.
In June, the Supreme Court found that the university’s anti-Asian admission practices violated Title VI of the Civil Rights Act of 1964.
The university’s capricious disciplinary practices have earned it a score of zero out of 100 from the Foundation for Individual Rights and Expression, the worst score the group has ever given an American university.
Together, these shocks seriously threaten our fund’s top line.
The Wexner Foundation has cut its contributions. We are concerned that the billionaire investor Bill Ackman, who has expressed strong criticism of Harvard, may do the same. Sixteen hundred alumni donors have signed a letter protesting the tolerance of anti-Semitism on campus.
We have become concerned that the university unit now poses an existential threat to Harvard’s core institutional mission: piling up the largest educational endowment on Earth. More than 100 professors have now signed a letter defending the ideological stance that negatively affects the fund’s revenue environment. Students have occupied university buildings to demand support for rhetoric that we fear encourages anti-Semitic harassment. The university’s administration has taken a worryingly lenient approach. This is not positive for brand image.
We respect the challenges of stakeholder management facing the university unit. But we’ve done a deep dive and run the numbers, and at the end of the day, we just don’t see a workable turnaround plan. We’re at a pain point, and our recommendation is that the time has come for the Harvard endowment fund to spin off its underperforming university unit.
Divesting from the university unit would reduce distraction for the endowment fund’s management team, and provide an opportunity to devise a more compelling business thesis for the spun-off unit. One proposal to explore would be selling that part of the business to a specialty operator with a superior record of success in the field of higher education. Purdue University is a candidate that comes to mind.
Purdue has been able to articulate a university policy that protects speech, even abhorrent speech, without sacrificing the university’s commitment to protecting Jewish students from anti-Semitic harassment and violence. Purdue has gone so far as to actually describe the murder of Israeli civilians as “barbaric terrorist attacks.” Imagine.
New management at the formerly underperforming university unit could focus on its neglected job of admitting smart undergraduates in ways that comply with federal antidiscrimination law, and teaching them something valuable in a community that enforces rules against ethnic and religious harassment for all groups equally. The newly spun-off university unit could also reintroduce the concept of “grades,” no longer automatically bestowing A’s on everybody for everything.
Meanwhile, the hedge-fund business will be free to make rational investment decisions without graduate students demanding that fund managers boycott one of the world’s most promising start-up markets.
We look forward to developing a win-win strategy for both new businesses, rebranded as Harvard Asset Management LLC and the new Purdue East.