Harvard has picked a new investment manager for its $26 billion in liquid assets (the university is weathier than this but much of its wealth is in real estate). According to this New York Times story, Mohamed A. El-Erian is “an emerging markets bond specialist” from “the bond powerhouse Pimco”. Choosing someone like this to manage its money is essentially a vote that public equities (stocks) will continue to perform poorly for some years to come. How is it possible for stock prices to remain stalled while corporations earn reasonably good profits and only pay out a small percentage of those profits as dividends (the average S&P 500 company pays out 32 percent of profits as a dividend)? Looting and dilution by managers granting themselves stock options. So Harvard, which has been mostly right since World War II and earned more than 19 percent in the last fiscal year, seems to be betting on the continued looting of American corporations by their managers and is apparently planning to put its money to work in foreign countries and via debt instruments.
5 thoughts on “Harvard predicts that public equities will continue to suck wind”
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Just because he invested in emerging markets in the past, doesn’t mean he’ll do this forever.
Corporations often assume that people are no good for things other than the ones they have experience in, but Harvard may be smarter than that.
Perhaps they see the transition of the baby-boom generation from peak earning (building up their 401K, buying stock) years to retirement (selling all that stock). That will definitely depress the market in the next decade or two.
Of course, looting is happening here and now, and Phil is right that it’s a huge problem.
Your are rigth on the money. We live in the age of agency. Stocks are owned by mutual funds. It seems that there is no longer any direct responsibility for anything. People used to own stocks (not funds with names like “Pegasus Overseas Growth”, and held managers accountable for their investments.
On the other hand, it wasn’t Harvard’s management that got those spectacular returns, but the investment manager whom they have now replaced. He didn’t seem to think that equities will continue to “suck wind” and he’s the one who’s shown that he knows what he’s doing.
Konrad: The October 3, 2005 issue of Fortune magazine shows that Harvard, as of June 2004 (i.e., under the old management regime), had only 15 percent of its money in U.S. public equities. Harvard has faith that its MBAs will make money, just not that they will make money for shareholders.