Costello: The pitcher's name?
Abbott: Tomorrow.
Costello: You don’t want to tell me today?
In the July 18 edition of Princeton Alumni Weekly a recent Princeton graduate pitches an article entitled: “Seeking financial stability in an uncertain economy.” Because the pitch failed to trigger the radar gun’s lower limit, I sent the author this letter:
“The two most important statements in your article are:
‘...the [university’s] portfolio included [at 6-30-08] 25 percent private equity; 22 percent real estate, timber, and other “real assets”;...[t]he remaining 25 percent was in a category the University calls “independent return,” which involves specialized investment funds, such as hedge funds,...’
‘Princeton said that in October it will be able to announce results of the endowment’s performance as of June 30.’
Every major mutual fund in the country is able to value its assets nightly. Did you ask the university why it is going to take them at least three months to value the endowment? Possibly you didn’t bother, because the answer is obvious. Seventy-two percent of the endowment is invested in assets for which there is no deep or reliable market, and therefore overall valuation of the endowment is an arguable exercise that takes time and produces an approximation at best. That needed to be your lead, and your story—‘Endowment cannot be valued reliably, and may be substantially illiquid.’
The university’s auditors have identified this problem. After stating, in their ‘Managed Investments’ footnote, that the fair values of investments where market values are not available are estimated by management (possibly with the assistance of appraisers and engineers) they caution that:
‘Changes in assumptions could have a significant effect on the fair value of these instruments. Actual results could differ from these estimates and could have a material impact on the financial statements.’
When the university eventually, in three months, or sometime thereafter (keep in mind that the Treasurer’s Report for 2008 is now more than 12 months late), announces the June 30 value of the endowment, that value will be something manufactured by them (possibly with the assistance of some appraisers and engineers), and that announced value of the endowment certainly will not represent funds that the university could draw on in the short-term, if ever. Were the endowment on the balance sheet of a bank undergoing a “stress test” the Treasury would lock the doors of Nassau Hall, and that is the scandalous reality that your article omitted.
Because the endowment cannot be valued reliably, or sold expeditiously or efficiently, the university has pulled a tight screen of nondisclosure around the identity of the individual assets that comprise it. If you asked them about this, as I have, you know that their excuses for the secrecy are pathetic and demeaning. Again, the individual holdings of the major mutual funds are public knowledge, and that transparency, in the eyes of our esteemed federal regulators at least, is salutary. Your article should have called the university out on its indefensible refusal to make full disclosure about the individual assets in the endowment, the identities of the managers, and the compensation paid to them.
Should Princeton’s endowment be invested in assets that can’t be valued, can’t be sold, and can’t be disclosed?”
Costello: You don’t want to tell me today?
In the July 18 edition of Princeton Alumni Weekly a recent Princeton graduate pitches an article entitled: “Seeking financial stability in an uncertain economy.” Because the pitch failed to trigger the radar gun’s lower limit, I sent the author this letter:
“The two most important statements in your article are:
‘...the [university’s] portfolio included [at 6-30-08] 25 percent private equity; 22 percent real estate, timber, and other “real assets”;...[t]he remaining 25 percent was in a category the University calls “independent return,” which involves specialized investment funds, such as hedge funds,...’
‘Princeton said that in October it will be able to announce results of the endowment’s performance as of June 30.’
Every major mutual fund in the country is able to value its assets nightly. Did you ask the university why it is going to take them at least three months to value the endowment? Possibly you didn’t bother, because the answer is obvious. Seventy-two percent of the endowment is invested in assets for which there is no deep or reliable market, and therefore overall valuation of the endowment is an arguable exercise that takes time and produces an approximation at best. That needed to be your lead, and your story—‘Endowment cannot be valued reliably, and may be substantially illiquid.’
The university’s auditors have identified this problem. After stating, in their ‘Managed Investments’ footnote, that the fair values of investments where market values are not available are estimated by management (possibly with the assistance of appraisers and engineers) they caution that:
‘Changes in assumptions could have a significant effect on the fair value of these instruments. Actual results could differ from these estimates and could have a material impact on the financial statements.’
When the university eventually, in three months, or sometime thereafter (keep in mind that the Treasurer’s Report for 2008 is now more than 12 months late), announces the June 30 value of the endowment, that value will be something manufactured by them (possibly with the assistance of some appraisers and engineers), and that announced value of the endowment certainly will not represent funds that the university could draw on in the short-term, if ever. Were the endowment on the balance sheet of a bank undergoing a “stress test” the Treasury would lock the doors of Nassau Hall, and that is the scandalous reality that your article omitted.
Because the endowment cannot be valued reliably, or sold expeditiously or efficiently, the university has pulled a tight screen of nondisclosure around the identity of the individual assets that comprise it. If you asked them about this, as I have, you know that their excuses for the secrecy are pathetic and demeaning. Again, the individual holdings of the major mutual funds are public knowledge, and that transparency, in the eyes of our esteemed federal regulators at least, is salutary. Your article should have called the university out on its indefensible refusal to make full disclosure about the individual assets in the endowment, the identities of the managers, and the compensation paid to them.
Should Princeton’s endowment be invested in assets that can’t be valued, can’t be sold, and can’t be disclosed?”
posted by mcd at 9:06 AM
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