Harvard is a hedge fund with a school attached

Jim Manzi, in a post from back in 2008:

The overall Harvard corporation gets to make money through investment returns on its endowment (or, more precisely, the General Investment Account, which currently includes about $6 billion of investable assets in operational accounts in addition to the $34 billion endowment) that doesn’t get reported as revenue. Last year, Harvard made more than $7 billion of tax-free investment income.

So if you just think about how much cash went into the shoebox and how much came out of it, a more accurate accounting for Harvard for FY 2007 would, in rough numbers, be a lot more like the following:

Receipts = $2 billion of operating revenue + $7.3 billion of investment income + $0.6 billion of gifts to the endowment = ~$10 billion.

Operating costs = ~$3 billion.

Profit = $10 billion – $3 billion = ~$7 billion.

This explains why Harvard’s net assets increased about $7 billion in 2007, from about $35 billion to about $42 billion.

Viewed purely in terms of economics, Harvard is really a $40 billion tax-free hedge fund with a very large marketing and PR arm called Harvard University that has the job of raising the investment capital and protecting the fund’s preferential tax treatment.

Of course, Harvard isn’t doing quite so well as of late. Here’s the chart of the university’s net assets from the latest Harvard University Financial Report:

Screen Shot 2013 07 13 at 4 45 40 PM

The fact that Harvard’s endowment fund isn’t doing well doesn’t mean that the comparison to hedge funds just goes away (hell, if anything it just makes it more apt).

That’s why Reuters’ Felix Salmon suggests that private universities like Harvard should lose their tax-free status:

The dollar value of universities’ tax exemptions is enormous — and it almost goes without saying that if we simply abolished those exemptions, and used the proceeds to spend on higher education, we would get vastly more bang for our buck. The overwhelming majority of the tax expenditures go to the richest universities — the ones who need the money the least. Meanwhile, great institutions like the University of California are slowly starved to death: direct fiscal expenditures, it seems, are much, much easier to cut than more-hidden tax expenditures.

Amazon CEO Jeff Bezos Invests in Business Insider

Amazon CEO Jeff Bezos Invests in Blodget’s Business Insider – Bloomberg:

Business Insider Inc., the news site co-founded by former Internet analyst Henry Blodget, raised $5 million in venture capital from investors led by Amazon.com Inc. (AMZN) Chief Executive Officer Jeff Bezos.

[…]

“Jeff’s leadership, vision and philosophy at Amazon have been an inspiration to a whole generation of startups and entrepreneurs, including me,” Blodget said in an interview. “It is a privilege and pleasure to have him invest in the company.” The New York-based company had about $10 million in sales last year and a net loss of $3 million, according to a person with direct knowledge of its finances. Business Insider has about 100 employees and is expected to bring in more than $15 million in revenue this year, though it may not reach profitability, said the person, who asked not to be named because the information is confidential.

It’s bizarre to read about your (future, I start Memorial Day week) employer raising millions of dollars in venture capital. I’m very excited to see the changes that will be happening at Business Insider while I’m there this summer.

Why Warren Buffett keeps buying newspapers

warren buffett money

Buffett, in a letter to Berkshire shareholders:

Charlie and I believe that papers delivering comprehensive and reliable information to tightly-bound communities and having a sensible Internet strategy will remain viable for a long time. We do not believe that success will come from cutting either the news content or frequency of publication. Indeed, skimpy news coverage will almost certainly lead to skimpy readership. And the less-than-daily publication that is now being tried in some large towns or cities – while it may improve profits in the short term – seems certain to diminish the papers’ relevance over time. Our goal is to keep our papers loaded with content of interest to our readers and to be paid appropriately by those who find us useful, whether the product they view is in their hands or on the Internet.

While the big national papers struggle, Buffett has been buying up the community publications which have been leveraging their near-monopolies on local news to try new strategies that will let them remain viable and relevant for at least the next few years.