Wednesday, November 19, 2008

UVa's Endowment Fiasco Detailed in The Hook

At last, some local reporting on UVa's endowment fiasco by somebody who knows what she's talking about and explains it very clearly for the unschooled reader.

It's the cover story, Missing Billion, by Lisa Provence in this week's Hook.

Provence very carefully explains the history of the endowment's investing, defines hedge funds and private equity, and explains how UVa lost $1B.

No Wahoos are talking except in official printed statements, but others are. Blogger Henry Blodget at explains the potential ramifications:

"JP Morgan wealth-management strategist Michael Cembalest summarizes the situation:

The endowment's value as of October 2008 is $4 billion, and they have $1.6 billion in uncalled private equity, real estate and natural resource commitments on top of $1.4 billion already invested. [That's 75% of the endowment pledged to highly illiquid investments].

The endowment has now announced plans to sell not only public equity, but also several hundred million from hedge funds at a time of illiquid markets, and to explore selling their private equity in the secondary market (a "market" which only exists in the narrowest sense of the word; there's around $15 billion in buy side funds looking for very steep discounts).

Endowments like UVA's make annual contributions to a university's operating budget, so a portfolio with a 75% allocation to private funds (holdings plus future commitments) is a very aggressive one.

Sorry, UVA alumni. You're going to have to make those gifts all over again."

President John Casteen recently addressed the issue, sort of, in this statement to the community. Exec VP and COO Leonard Sandridge attempted to allay concerns in this press release.

Read UVIMCO's disastrous Third Quarter Report here.

See the post UVA: Sorry, Alumni, We Gambled Our Endowment and Lost.


George Welsh said...

If they thought the third quarter was bad, I wonder what the fourth quarter-to-date results look like? The worst of the market's decline happened post-Sept. 30.
I'm thinking layoffs, elimination/delays of large capital projects, etc. are ahead of us.

JamesHuron said...

Spin it as the administration will, there's just one phrase to describe what's coming our way:

We're F*cked.

Mark said...

If UVA's endowment fund performs in this fourth quarter like its football team usually performs in the fourth quarter, the Cavs are in trouble.
Maybe Al Groh can manage the fund and Mr. Brightman can coach the team.

Anonymous said...

If you read the UVIMCO report, which is linked in this post, you'll see that AFTER the $1B was lost, there was an additional 20% loss.

This is horrifying and absolutely shameful. It's the greediest kind of investing possible. Although this entire downturn took all of us by surprise--including bernanke and paulson--there's no reason that the Endowment should have been put at such risk. Reasonable finance experts know high returns are only possible in bubbles.

I would have hoped for more from Mr. Jefferson's University.

sebastian said...

In Cville it's still a great time to buy a house.

This kind of crazy thinking extended would lead the UVIMCO investors to believe It's A Great Time To Sell Off.


Anonymous said...

And yet...we still have an overabundance of irrational optimism from the clever seller of MLS# 459503 which was just listed. The really great thing is the $519000 price tag is just the tip of the iceberg. The house also needs renovation:) Grab your checkbooks and hurry because this one will NOT last long. FYI it sold for $73000 in 1980.

brookly bob said...

This is a price "adjusted" to reflect current market conditions. LOL. Last year, it would have been at least 100K more.
While the street is a lovely one, the house itself, in need of renovations, is not.
The agent is doing the seller, or the owners' heirs, a real disservice indicating that anything near this asking price is possible.
And anybody who buys it at a time like this, or near this price, hasn't adequately researched this market, nor paid attention to local, regional, national economies.

brooklyn bob said...

MLS# 459498

$220K price reduction


Listing sez: "this is a good value".

I feel ashamed for the seller & agent.

brooklyn bob said...

"price reduction" meaning it's now 220K but was slightly higher a few weeks ago

Anonymous said...

I found Casteen's statement frightening and bizarre. Harvard's letter, by contrast, reveals that intelligent planning is taking place, rather than reckless disregard for sound financial principles:
Maybe Wachovia wishes now they hadn't put Casteen on their board.