I always thought that universities being economically powerful could be an advantage so they could be another pillar of civilization, less beholden to corporate or government influence. I do wonder if they are using that power well recently though.
I love your point about them being another pillar of civilization, independent as much as possible from corporate and government power. Well put.
Regarding the use of hedge funds, I think that when you're managing a multi-billion dollar endowment in a $300+ trillion global finance world, you'd be crazy not to. Stock markets represent only a fraction of total invested assets worldwide. Bond markets are larger by far, but interest rates have been so low for so long that it's hard to grow your money there in a straight-forward manner. So to diversify without killing growth you need novel but robust (i.e. not pure play) investment strategies that leverage varied facets of the global economy, which is where hedge funds come in.
Whether schools should be spending more of their endowment is another question--set of questions, really. But the talk about hedge funds just seems like a pointless, sensationalist distraction. Hedge funds aren't merely a niche, high-risk corner of the finance world like they were a couple of decades ago. They're still complex and opaque, but so is modern software; that sort of systemic complexity seems, in part, inevitable.
Your point about diversifying beyond public markets should refer to private equity, not hedge funds.
More and more over the last decade, the correlation of the public markets and hedge fund returns have increased significantly.
Of course, this shouldn’t happen given the name “hedge” fund.
Further, an increasing number of hedge funds are shutting down as their fee structure it too high, and they are being increasingly copied by mutual funds (e.g long short and global macro funds).
So, while I agree with your disdain at the public outcry toward hedge funds, I’ve found they are less and less useful for wealthy investors due to what I mentioned above.
My initial experience was at the University of Pretoria. It was absolutely a business. My course had an unresolvable schedule conflict: a challenging class with a trivial one. The latter had an attendance mark (60%, so automatic failure), we needed the tutorage for the former. When we approached the lecturer, she said: "tough luck, fail it and take it next year." We contacted the Dean, and he supported her view. Accounting wasn't interested that we would be failing a subject for reasons beyond our control.
I decided I was wasting my money and that's why I am at another university a decade later. You pay a flat fee for each semester, including all required reading and course content - for as many courses as you can manage (which you do serially, so you won't over- or under-commit). You are there to prove what you know, so you can skip straight to examinations. I haven't yet started, so I have an incomplete opinion. Still, it's a refreshing change from the wanton exploitation of dreams that I experienced in South Africa.
The problem is when you have a hedge fund the education part takes a back seat. Anything that might undercut the fund is to be eliminated or avoided.
So too "economic power" does not really follow "pillar of civilization". The slave trade was economically very powerful and influential in the 19th century. I think most people consider it as something that eroded development of civilization.
I'm not so sure they are independent of government influence, given all the research grants, etc., but I think the influence between government and academia is a two-way street.
I recently ended up in an interesting conversation with a university faculty member where we found that many of the most endowed universities could essentially make undergraduate education free and make back the difference (and often more) on straight interest accumulated from leaving their money in a bank.
Given that they are probably making more than the current interest rates by investing, I wonder why students still pay so much for tuition at these universities in particular.
Because they can charge that much, and people are willing to pay the amounts they pay. Wouldn't be very exclusive now would it, unless you're charging $100k a year?
Wouldn't be surprised if a few have dabbled in cryptocurrencies in arms length relationship with investment partners while governments blame the technology for lawlessness. That's often how these things work.
