Why private school?

Also, just saw that a top VC firm has added as a new partner a fresh May '23 grad school graduate. Is that because he went to Dalton?

I am redoing my math on private school ROI.

Personally, I find that many practitioners in medicine (full doctors, not residents) are working very little!

https://resources.nejmcareercenter.org/article/part-time-physician-practice-on-the-rise/
21% of physicians worked part time in 2011

https://www.marketwatch.com/story/too-many-female-doctors-go-part-time-or-stop-working-and-thats-bad-for-patients-2019-08-06
A more recent article - 31% of female doctors with children work part time

I tried to schedule an appointment with a dermatologist at NYU Langone... she only worked 3 days a week, 10am to 4:30pm. I scheduled the first available appointment which was months in advance... she canceled the day before because her child had COVID . I rescheduled. After she canceled the second time (again because of something child care related), it was time to find a new doctor.

My male dentist on UES used to work 5 days a week and once a month accommodated Saturdays, but in the last few years, he changed his hours, and now is only 9-4:30 Monday thru Thursday. I guess he makes so much working part time that he does not have to worry that his UES office is standing empty 3 out of 7 days a week. Or that some patients have trouble fitting his care into their professional lives.

But call a realtor, a banker, a consultant or a lawyer, you will typically get a response very quickly!

"Also, just saw that a top VC firm has added as a new partner a fresh May '23 grad school graduate. Is that because he went to Dalton?

I am redoing my math on private school ROI."
I am telling you that with so many qualified applicants for every position who you know is, sadly, incredibly helpful.

On the occupation front, I recently read an article about the suicide rate among veterinarians and discussed it with a veterinarian friend. I am glad I am not in that field because I am fairly certain that it would get to me. BUT, on a contrasting note, I don't know any lawyers who are or have been suicidal, and I actually found that field to be anything but lonely. Moreover, the bulk of my world is in that field, and I think that those who are still practicing find it social, engaging and collegial. With that said, the hours are brutal, and I personally experienced sleep deprivation on a level that was not sustainable for me such that I had to opt out lest I get kicked out. So, there's that.

On the physician front, my most strategic and academically-gifted female friends became pediatricians. Do your own survey of smart-women-married-to-smart-men and see how many pediatrician-women-married-to-VC/PE/IB/BigLaw-men you find. That network in Silicon Valley is off the hook.

@krolik - If you stay in Murray Hill and opt for private school, consider the UN school. Friends in our neighborhood have been pleased with it, and their oldest child just finished her freshman year at Yale. :)

>> so many qualified applicants for every position

This is very far from my line of work, where it’s the opposite. Few people have sufficient capabilities, which is probably more structural to the nature of the work than a reflection of the candidates. So I have very little experience with that world. Regardless, the phrase “so many qualified applicants for every position” just makes me think these are fields bound for lower relative wages over time.

I wondered how true this was, so I looked at income growth over the past 20 years across different fields. For reference, average nominal income per capita in the US has grown ~2x over the past 20 years. This is higher than inflation (~1.65x), reflecting productivity improvements. First-year pay for my work has grown ~3x over that same period. But if I look at doctors, it’s ~1.65x. First-years at big-law, ~1.65x. First-year bulge-bracket bankers: ~1.65x.

In a period characterized by increasing income inequality, it’s rather amazing that these high-income wages have not kept pace. Surely, there have been productivity gains in the fields. But only inflation has made it into the wages.

All I can think is “so many qualified applicants for every position…”

There are a lot of very interesting applicants for every job in VC. How does a person with the typical undergrad + 5 yrs work experience + elite MBA background out-qualify everyone else for a Partner job at a top fund, skipping the typical Senior Associate, and VP/Principal steps?
Even if someone knew him/her from Dalton (a private school on UES), it seems like a stretch to get a job like that just by knowing someone. I am thinking, more likely, this might have been a favor to his/her parents who are important investors with the VC fund, or something like that.

>Few people have sufficient capabilities, which is probably more structural to the nature of the work than a reflection of the candidates. So I have very little experience with that world.

Please clarify. Not enough people graduate with the right major or know the right tools? If the field is high paying and well known, this should correct itself over time. The firm could also offer couple of weeks of training on any niche tools needed for the job.

There is a long line outside the doors of banks, consulting firms and law firms, so there is no reason to raise entry level salaries as people are attracted to the possibility of promotions and high pay later. I actually think that pay is potentially too high at the entry level.
After firms select those that in short interviews seem like the smartest, and the most committed, most junior employees cannot stand the travel and the hours and drop out (or are pushed out). The remaining individuals command extremely high compensation, which in turn attracts new generations of kids wanting to try it to see if they can make it to that level.

>On the occupation front, I recently read an article about the suicide rate among veterinarians and discussed it with a veterinarian friend

What is the source of dissatisfaction? I would have thought this was one of the most pleasant professions out there... cute kittens all day long. And if someone dies on your watch, at least it was not a human.

Re: vet
It's quite a bit of education for way less pay than human doctors.
People doing it generally love animals, and since the patients have short lifespans they see a lot of death. Imagine being a pediatrician but none of your patients live past middle school ~ high school age.

Your patients can't communicate their needs or discomforts, diagnostics are not as refined as for humans, and a lot of stuff is barely treatable.
I'm sure they deal with a disproportionate amount of distraught human pet parents, some of which have unrealistic expectations.
Patient payment is more burdensome as most don't have pet insurance and/or pet insurance is kind of hit or miss for coverage.

So fits the profile of a job with high stress from lack of control / lots of bad outcomes.
Also there's currently a vet shortage probably related to the above.

>> Please clarify. Not enough people graduate with the right major or know the right tools? If the field is high paying and well known, this should correct itself over time. The firm could also offer couple of weeks of training on any niche tools needed for the job.

No specific major or tools required, although the majors end up clustered. The field is high paying and well known, but I doubt it’ll “correct” itself anytime soon (but like all things, eventually will). The way we practice it is as research-oriented work, with productivity characterized by figuring out things no one else has ever figured out before, despite large effort. Anything less is of little value, so the bar of being useful / successful at the work is set by the collective output & capabilities of others. The cost of a “bad” hire is exceedingly high, so the “let’s see” approach is not a viable recruiting option.

>> The remaining individuals command extremely high compensation, which in turn attracts new generations of kids wanting to try it to see if they can make it to that level.

True, but the (relative) size of that pot of gold is decreasing.

The WSJ article’s graph shows virtually no growth in median MD pay at banks (excluding group heads and zeros), compare to 1.82x income per capita growth on average across the US. I mean, how is a seasoned banker supposed to get by on $1.5M anymore?

Lawyers do not seem to be faring much better, despite the article’s headline. They’ve ended seniority-based pay and reduced the number of equity partners, which has created large-comp winners unlike before. But looking at revenue per lawyer across AM 100 firms, there hasn’t been much growth. In 2022, it was $1.15M per lawyer:

https://abovethelaw.com/2023/04/the-am-law-100-biglaw-gets-bucked-off-at-rough-revenue-rodeo/?amp=1

In 2005, I calculated $725K from this table:

https://adamsmithesq.com/2006/04/the_2006_amlaw_100_ranked/

That’s 1.58x, closer to inflation. The big pay is coming from more lawyers bringing in the same inflation-adjusted dollars, divided by fewer equity partners.

It does seem like a logical outcome of “so many qualified applicants for every position”, I suppose.

There are worker bees and rain makers in law firms. The skill for worker bees is abundant for the number of positions available but the worker bees have very poor quality of life.

Very few people have the ability and skills to get new business. Just like banking. Law firms have started to operate more like investing banking in terms of payouts but most still don’t kick out partners (MD eqt) that easily.

Krolik, one of my best friends is a doctor, and I hear a lot about her work life, and so I would remind you that patient-facing hours are not the only hours doctors work. Just because a doctor is only seeing patients three days a week doesn't mean they're only working three days a week.

>> Very few people have the ability and skills to get new business.

I tried to back out some numbers across AM 100 firms. It seems like there’s 5 non-equity lawyers for every equity partner on average. Perhaps 60% of billings goes to the lawyer (including benefits), 20% to office & staff overhead, and 20% to the equity partner? All told, a 20% sales fee to the rainmaker bring in the business doesn’t seem bad.

What 300mercer said re law, and what Steve123 said re veterinarians.

I think we might be close to due for another Big Law crash.

@30yrs - nope. Fundamentals are stronger than ever.

@MCR ...until they are disrupted by ChatGPT or similar Generative AI tools...

On Investment Banking side, I wonder how productivity has changed due to new regulations (no prop trading, more compliance costs and procedures, etc)? Might that be what is causing wage stagnation? It is possible also that pre-financial crisis banker wages were in a bubble, very inflated?

Consulting I believe has grown tremendously in size over the last 15 years. How has this affected wages?

Healthcare costs are also up, but also new regulation has been passed, has that affected MD earnings?

>Krolik, one of my best friends is a doctor, and I hear a lot about her work life, and so I would remind you that patient-facing hours are not the only hours doctors work. Just because a doctor is only seeing patients three days a week doesn't mean they're only working three days a week.

Some doctors work hard, no question about it. However, a large number of doctors, and particularly female doctors, work part time. These are not mutually exclusive observations.

And of course, doctors have overhead hours for admin work, we all do, but I think it did get optimized quite a bit in the last few years, and lots of such work is now performed by admin staff. I have seen many doctors lately populate the EMRs in front of me during my visit, not afterwards, so it is part of the patient visit time. They typically input no more than a sentence or two on the encounter (I collect all dr's notes afterwards for my personal record).
In one recent instance, a dr wrote a single sentence in my chart that was completely wrong. NYU Langone told me it is on me to contact the records department and fill out lengthy paperwork to correct the chart that THEY made a mistake in. Unbelievable.

>> Consulting I believe has grown tremendously in size over the last 15 years. How has this affected wages?

I couldn't find industry stats, but if you search for Wharton's MBA career report 2002 vs. 2022, you can see that median first-year salary has increased from $100K to $175K. So slightly more than inflation (1.65x) but not general income growth (2x). I think the first-year pay increase for banking is similar. But neither of these data points say much on how bonuses or more senior pay has changed. Anecdotally, senior banking pay seems to have gone flat -- both from the WSJ and CEO pay. I would guess senior consulting is more like law, where things seem to have been ~1.75x on average.

>> Healthcare costs are also up, but also new regulation has been passed, has that affected MD earnings?
The best I could piece together is 1.85x between 2002 and 2022, across the full profession.

Some interesting datapoints for Wall Street type banking, as opposed to other types, by looking at numbers from GS.

First, headcount is up 65% since 2005:

https://stockanalysis.com/stocks/gs/employees/

With revenue up only 88%:

https://stockanalysis.com/stocks/gs/revenue/

I tried to compare “decent” years with 2005 & 2022. Using “peak” years of 2006 & 2021, its 45% more employees and 30% more revenue.

Of course the employee mix might have changed, but it certainly doesn’t speak to revenues supporting compensation growth.

Looking up comp & benefit expenses for 2006 (page 74):

https://www.goldmansachs.com/investor-relations/financials/archived/annual-reports/attachments/annual-report-financial-section.pdf

Versus the same for 2021 (page 123):

https://www.goldmansachs.com/investor-relations/financials/current/annual-reports/2022-annual-report/multimedia/annual-report-2022.pdf

I’m getting $542K/employee in 2006 versus $404K/employee in 2021. There’s probably an element of the change in employee mix — more junior staff, more offshore staff, etc. — but even total comp addd up across ALL employees is virtually unchanged between those pairs of years.

Anyway you slice it, that’s a far cry from 50% inflation over the same period to say nothing of productivity growth.

Consumer banking hiring, regulatory related hiring plus huge offshoring increases percentage of lower paid employees. Prop trading is lower which decreases number very highly paid employees. Capital requirement increase also means that payout has to reduce for the same amount of revs.

Do you have a sense for employee composition in 2006 vs 2021? Even with the change in mix and increased headcount, total comp expense was $17B in 2021 vs $16B in 2006. Given that, stagnation in CEO pay and MD pay (per WSJ) seems likely real rather than a change in mix. Would you agree?

It is real for sure for the following reason:
Prop trading is lower which decreases number of very highly paid employees. Capital requirement increase also means that payout has to reduce for the same amount of revs.

@300 is 100% right here
Banks in general have moved to a more & cheaper approach to staffing for sure.
High margin / high pay areas like prop have been regulated away, and all those high paying jobs have moved to the bigger-than-ever hedge fund side.

GS in particular has gone through a big consumer banking build out with Marcus, which is notably hemmoraging money, so it's unsurprising to see staffing up, pay per staff down, and staffing growth outpacing revenue growth.

What do you guys make of the investment banking side of things — deal making rather than trading, retail, commercial, asset management, etc.?

Looking at this, worldwide IB revenues have been about flat at ~$20B per quarter since 2013:

https://community.ionanalytics.com/investment-banking-revenue-report-9m22

There was a blip up to ~$32B in 2021 but seems offset by 2023, which is looking like it’ll come in at $15B. Big picture, you’d expect this sort of thing to track GDP growth, which “should have” made $20B become $32B by now.

I don’t think this stuff has been regulated away, nor do they seem very sensitive to capital requirements. E.g., do offerings and M&A use up gobs of capital? And have the requirements even changed over the past decade meaningfully? Whatever the capital requirements, less top-line dollars are coming in from deals, it appears.

Revenue aside, banking pay-out is also sensitive to capital requirements as in order to get M&A and underwriting business, the banks needs to make loans such as leveraged buy-out, credit lines etc. Most banks have a separate book (know by Capital Committements or Relationship Loans) for these kinds of loans which are a giant capital user.

An example:
https://www.bloomberg.com/news/articles/2022-11-10/twitter-loans-get-bid-at-60-cents-as-banks-sound-out-investors?sref=8b9zkmXu

Basically the loan market value on fully sold basis is lower that the price at which the bank make it. Otherwise, they would sell all of it on day 1 rather than holding on their books. For the loan portion which is unfunded, liquidity requirements are much higher now vs before. That is the main cost of deal making in addtion to operational/legal capital requirements which have also increased. So pure deal-making is more capital intensive now vs pre-Volcker by a factor or 2 if not more.

Was never in IB so don't have a lot of knowledge & strong opinions, other to suggest that for any given Tier 1 US Bank, it was never a huge driver of employment. It is high margin / low capital / low staffed by comparison to other areas of a bank.

GS being an example, if I read their 2022 revenue correctly, IB $7.5B vs $26B of sales & trading vs $13B Wealth Mgmt .

MS kind of similar IB $5B vs $20B sales&trading vs $30B wealth & investment management.

Look at some of the press releases lately about cuts in IB at some of the big US banks, and they'll bother to spill ink on a story like "20 Asia-based investment banking jobs were cut"
https://www.bloomberg.com/news/articles/2023-06-21/jpmorgan-cuts-about-20-asia-dealmaking-jobs-in-new-layoff-round#xj4y7vzkg

Meanwhile at big bank when they cut sales & trading / consumer / wealth you'll hear of layoffs in the 1000s. Note that these 3 areas are something of a tech arms race so you have many layers of staff to support the business.

Post-GFC there are a lot more compliance employees at Investment Banks, including on the private side.
https://www.statista.com/statistics/1086150/compliance-officers-employment-usa/
These employees are also supported by numerous net new technology employees.

On the other hand, hiring for entry-level deal-maker jobs has been reduced, as technology advances made these employees more productive.

There has been a decline in Equity Research budgets, driven by new regulations in the US, and particularly in Europe. Research does not generate revenues directly, but indirectly it is important for both brokerage and deal-making businesses.
https://www.economist.com/finance-and-economics/2017/03/30/banks-equity-research-operations-are-in-decline

Some research jobs likely have moved outside of big banks into specialized firms, along with prop trading.

Outsourcing trend across the board in the US means many support jobs are no longer internal to companies and are not captured in the headcount. This includes technology support hired as contractors via staffing agencies, as well as various other support and facilities workers which are now technically employees of companies like Aramark, even though they work embedded at other companies.

Finally, boutique banks have become more prominent, taking something like a third of M&A business from large institutions.

So per employee revenue, profit and pay figures for big banks are affected by many factors pointing in opposite directions.

Law firms also benefitted immensely from technology advancements and outsourcing, which has grown by double digits: https://www.clio.com/blog/outsourcing-legal-services/# while entry-level class sizes have remained stable: https://www.chambers-associate.com/law-firms/law-firm-intake-sizes

This probably means expenses and pay (internal to the company) can grow slower than revenues. But some of the pay is external now, captured under tech and services spend by law firms.

300>> So pure deal-making is more capital intensive now vs pre-Volcker by a factor or 2 if not more.

Thanks, 300. That makes sense. When did the Volcker rules go into effect with respect to M&A and offerings?

Believe it was 12-13 but the capital requirement kept increasing during Fed's stress test. Volcker was more focused on Prop Trading.

Pure M&A advisory is not capital intensive. But a chunk of that business has moved to boutiques.

Big banks are harder to replace on M&A transactions where financing is required, although in the last few years that has also been happening via the expansion of the private credit industry.

Krolik, What would you guess is the percentage of deals in which there is no existing loan or future loan committment relationship with the advisor?

>Krolik, What would you guess is the percentage of deals in which there is no existing loan or future loan committment relationship with the advisor?

As a guess, and considering a third of the business is done by boutiques, probably 40% or so? It does depend on the industry as some industries are more leveraged than others.

Would debt financing P&L accrue to M&A or the sales/trading side of a bank? What about IPO share P&L from whatever is retained by the bank rather than sold to the street?

And it happened: Supreme Court Strikes Down Race-Based Admissions at Harvard and U.N.C.
https://www.nytimes.com/live/2023/06/29/us/affirmative-action-supreme-court

Depends on the bank. Typically 50/50 split for such books between banking and trading.

——-

Would debt financing P&L accrue to M&A or the sales/trading side of a bank? What about IPO share P&L from whatever is retained by the bank rather than sold to the street?

Can someone now take on legacy and donor admissions that effectively serve as affirmative action for the white and rich?

You may soon get your desired outcome sans further legal action:

https://www.nytimes.com/2023/06/29/opinion/affirmative-action-supreme-court-harvard.html

As Justice Neil Gorsuch notes in his concurrence, the plaintiffs in the case submitted evidence that “Harvard could nearly replicate the current racial composition of its student body without resorting to race-based practices,” if it gave socioeconomically disadvantaged students just half the advantage it gave recruited athletes and if it eliminated preferences for “the children of donors, alumni, and faculty.”

@nada - that's exactly what schools should be doing

Economic class is much easier to objectively measure, and will solve for the same problem while including some that were getting overlooked (poor whites, poor Asians). It will also avoid unintentionally benefiting people who don't really need it (already rich minorities).

Further, financials can certainly be obfuscated and gamed.. but it's a lot more work than simply checking a self-reported racial profile box on an application. Just ask a famous senator!

>"...if it eliminated preferences for “the children of donors, alumni, and faculty.”

But I just really doubt they will do that willingly. Elite schools don't need to grow endowments, but they seem to be acting like growing endowments is almost the only thing that matters. Sans legal action, I doubt these policies will change. Someone should go out there and fight the donor/alumni/faculty policy based on disparate impact or something.

By the way, I thought this paper about race-conscious admissions alternatives was interesting: https://economics.mit.edu/sites/default/files/publications/The%20Efficiency%20of%20Race%20Neutral%20Alternatives%20to%20Rac.pdf

@krolik - I think largely the Ivys are just elite on elite warfare here, but the real story is the much larger state by state public university systems.

These are where the bulk of education happens in this country, and where the disadvantaged are more likely to find their path upwards.

UNC alone has 240K students in their system, so that's what.. like 5x all the Ivys combined?

To me it's kind of wild that such a large, not exactly elite, public university had this going on too. The messages released in the SCOTUS brief were kind of embarrassing for the admissions staff I'd think. Kind of casually racist and gross.

Many ivys offer mostly free tuition and even boarding to students with less than $100-150k income. If you stop admitting the donor's kids, how will the free tuition be impacted? And technically the discrimination is only based on money which is not illegal. Perhaps a better way would be for these universities to auction x number of seats (auction currency can be in number of full scholarships you are going to fund and the donor can name it if they like) with fully trasparent min qualifying GPA , SAT or other criteria for candidates.

Without tax deduction I may add as the donor got a direct benefit.

>And technically the discrimination is only based on money which is not illegal.

No, not only money. It is also based on legacies and parents who are faculty (both groups disproportionally white). That's why I think someone needs to sue that this is in fact racist based on "disparate impact" standard.
https://www.justice.gov/crt/fcs/T6Manual7

>If you stop admitting the donor's kids, how will the free tuition be impacted?

At the most elite schools, it won't. Their endowments have been growing (tax-free by the way), and they have more money than they know what to do with.

>Perhaps a better way would be for these universities to auction x number of seats (auction currency can be in number of full scholarships you are going to fund and the donor can name it if they like) with fully transparent min qualifying GPA , SAT or other criteria for candidates.

Love this idea.

@300 I kind of like where you are going with this.

The scholarship equivalent of Tom's / Warby Parker "buy a pair give a pair" program...

I would argue that todays "super elite" get away quite cheaply in terms of societal give-back, with much less contribution back to society in terms of arts/education/permanent foundation creation when you look back and compare to the Mellons, Vanderbilts, Rockefellers, etc of the past.

It's interesting how many historical mansions in the NYC area (or FL for that matter) from the gilded age / robber baron era are now museums or parks of some sort.

It seems current tax rates / tax arb make it easier to avoid paying the piper, and it's a lot easier to spend it now than it used to be, arguably. Why NOT buy another gulf stream?

Steve,

Govt would need to put restriction on charitable donations if they are to be tax deductible. Essentially which receiving institutions qualify for deduction. But that is not happening any time given that the congress hasn't even acted against carried interest tax treatment.

Krolik,
Faculty kids preferential admissions are employment benefit offered to employees of all races and income levels. Not sure any court would rule against that.

Legacy admission (with say less than 4 year of full tuiton total donations) case is much harder to make. That should just be auction of how many scholarship kids are willing to sent to school if your smart-enough but "not-making-the-cut purely based on merit' kids is getting an admission. But the universities wouldn't like it as transparency takes away administrator's control and agenda.

https://www.bloomberg.com/news/articles/2023-07-03/harvard-legacy-admissions-targeted-in-minority-groups-complaint

I have no clue on the legal merits of the case, but this one sounds like a peach to defend. Defending the indefensible. I’ll guess Harvard will fold shortly enough.

in that case I better load up on sweatshirts

lol.

From the article: “As a recipient of these federal funds, Harvard must comply with Title VI and applicable regulations, namely, the obligation to ensure that its programs do not use criteria that disproportionately and unjustifiably exclude applicants in protected classes, such as people of color”

Looks like the complaint is using the "disparate impact" standard from Title VI that I linked above. I believe this approach worked in numerous employment discrimination cases.

My brown baby won't get any affirmative action benefit, but I hope s/he also won't have to grow up in a world where legacy admissions exist either.

What is your opinion on schools taking socio-economic factors into consideration in admissions?

Don't certain schools have big enough endowments that they don't need federal funds? Didn't NYU med school recently drop tuition altogether?

@30 - for sure
Harvard is basically a large hedge fund with a small school attached to it now.
$50B AUM, puts them in the big leagues with Citadel, Millennium, etc.

Targeting a 5% annual return gives them $2.5B to spend without touching principal. They have a grand total of 7k undergrads on campus.. lol.
So they could in theory zero out tuition and give each student a Bentley, just off the returns.

Instead their endowment grows faster than they spend it, and they continue to get new donations..

Yeesh, Steve. Pitchforks are good fun & all, but if it were in your hands, you’d run a university endowment into the ground. Maybe that’s your intention?

An endowment like Harvard’s has returns in the ballpark of 8% per year. But you need to grow the endowment by 4% per year to keep up with inflation (2%) and real GDP growth (2%). Otherwise, you cannot continue the economics into perpetuity. Much to the consternation of everyone, expenses grow at rates above inflation because university employees want to get paid more for their increased productivity just like everyone else; students don’t want to like in 1930s-era levels of housing; etc.

So that only leaves $2B/year from that $50B endowment as income to be spent. The other $2B has to be used to grow the endowment to $52B, to be able to maintain the level of “subsidy” the endowment provides into perpetuity.

Is $2B/yr from the endowment enough for all of Harvard’s expenses? No: the expenses run at $5.4B/yr.

https://finance.harvard.edu/financial-overview

Some key facts about Harvard.

25,266. undergraduate and graduate students ; 19,639. faculty and staff.

$200k per student spending. There is some genuine research done by the University which is in national/societal interest. So call it $150k per student spending ex research.

I have always wondered how much of that is administrative bloat as the endowment is funding it. Society likely will be better off taxing the returns and spending it on opening some Federally run G&T schools for primary education where kids from only low income zip codes are eligible.

Actually, even better Harvard and other ivies with fat endowment should open, fund, and help manage some such schools in poor areas if they really care about the affirmative action.

Looks like the endowment spent $1.2 billion of the $2.1 billion distribution on Harvard operating expenses. Any idea where the other $900 million went to?

Of course Harvard isn't immune to the administrative bloat which has been driving up education costs for decades.
https://www.thecrimson.com/article/2022/11/29/anderson-bureaucratic-bloat-harvard/

@300 "Actually, even better Harvard and other ivies with fat endowment should open, fund, and help manage some such schools in poor areas if they really care about the affirmative action."

Exactly.

My point @nada isn't that they should burn it all to the ground, but that it is obscenely outsized endowment for the amount of students they educate, purposely remaining essentially a luxury brand. And that, compared to the size of the endowment return, they aren't spending that much of it on educational work. Mostly the return goes towards the endowment continuing to grow.

Then you have Ken Griffin giving Harvard another $300M (equivalent to about a months worth of endowment investment return lol), because it's a brand. At least Jim Simmons gave his $500M donation to Stony Brook, which manages to educate 18k undergrads with only a $500M existing endowment (against Harvards $50B endowment to educate 7k undergrads).

If you want to talk about some serious science research & results, Stony Brook at 1% of Harvards endowment is seriously kicking butt in the ROI department. RIT doing similar numbers, 16k undergrad on a $1B endowment.

Just from a scale perspective then, Harvard could endow a very serious mass educational sister school system with just a fraction of their endowment, again, if they were concerned about AA & national interest, etc... not just the brand.

I guess the philosophical question I am getting at here, @nada ,etc is - what is the larger purpose of an endowment?

Is it to educate?
Or is it a big ball of money that must be increased at the expense of all other priorities?

To me, Harvard endowment is like someone maxing out their IRA/401K, employer matching, using loopholes like Thiel to put private investments @ obscenely high returns in.. and then refusing to retire, dying at their desk at 85.

What is it for?

I've worked for hedge funds, so I don't refer to Harvard as "a large hedge fund with an educational institute attached" as a slur, but as an observation. Both their size ($50B) and at various points staffing (100s) put them will in range of multiple firms I have worked. Certainly the compensation that's been reported looks pretty attractive, career wise!

300 & 30yrs, I have no idea how Harvard spends its $200K per student on research vs teaching vs housing vs facilities vs administrative bloat. Maybe you guys can actually break out the numbers and say what to cut & why. I dunno. I was just talking about revenues & costs.

Nevertheless, I find it entertaining that $150k/yr or $200K/yr at a top research university ostensibly for the top 0.1% of students or whatever, to push the boundaries of knowledge, is considered excessive… on the same thread discussing spending $75K/yr to teach overprivileged 6 year olds how to add… because the $38K/yr spent by NYC per student on how to add yields inadequate education.

>> Mostly the return goes towards the endowment continuing to grow.

It’s kinda hard to discuss what the goals of a school like Harvard are / should be when you don’t acknowledge the facts. About half the returns from the endowment (4% or so) is spent each year, in ways you might not like. The other half (4% or so) grows the endowment:

https://finance.harvard.edu/files/fad/files/fy22_harvard_financial_report.pdf

Let’s pretend you run a university, and money is spent exactly as you see fit. How would you spend vs grow your endowment?

>> What is it for?

I imagine it is to allow them to be able to continue their vision for their institution into perpetuity, not just until they’re 85. I suspect the vision they have for their institution revolves a lot less around branding than yours. I also suspect they view their mission to be a lot less about teaching and much more about research than you do. It’s quite typical for a professor at places like these to teach one course per year, sometimes begrudgingly. They’re research universities, not teaching universities. The top two reasons professors want positions at top research schools are: (1) less teaching, to allow more focus on research h; and (2) better students, more capable of research.

I’m not saying you should like it or agree with it, and I’m not here to defend or disparage it. But at least first try to understand it in terms different than your branding-centric view of the world.

Nada, Here is website which provides statistics about various universities. Taking Harvard as an example. Faculty (2455) vs non-faculty (19,000 plus) gives you a sense of administrative bloat.

https://www.univstats.com/staffs/harvard-university/

>What is your opinion on schools taking socio-economic factors into consideration in admissions?

I am for it. First-generation college-bound student from a farm will have fewer opportunities and advantages to maximize their studies and resume than my kid in Manhattan will. The first generation kid should get a second look.

>Then you have Ken Griffin giving Harvard another $300M (equivalent to about a months worth of endowment investment return lol), because it's a brand. At least Jim Simmons gave his $500M donation to Stony Brook, which manages to educate 18k undergrads with only a $500M existing endowment (against Harvards $50B endowment to educate 7k undergrads).

Jim Simmons has common sense. Marginal dollar goes further at a school that has fewer dollars.

>300 & 30yrs, I have no idea how Harvard spends its $200K per student on research vs teaching vs housing vs facilities vs administrative bloat. Maybe you guys can actually break out the numbers and say what to cut & why. I dunno. I was just talking about revenues & costs.

Spending any amount of money is no problem. It does not mean that the education would be any worse if they spent any less. Top schools will give you free swag at orientation and campus events, while state schools will ask you to buy it at the gift shop. Top schools organize lots of events (some of which are poorly attended as there are too many events for the size of student population), and have nicer desks in classrooms. Definitely lots of administration bloat. Most of these costs are not educational necessities. Of admin (non-education costs) what is really helpful to students is a good career center, and it is non-existent at state schools due to lack of funds.

For the most part, undergrad students don't push boundaries of knowledge, grad students do, but their education and stipend is funded from another pocket (research grants from federal govt and 3-rd party foundations).

That ratio is higher than other top schools I randomly clicked on. I haven't analyzed whether bigger endowment in private universities leads to bigger admin bloat. Ideally, I would love to see the percentage mix over time. Say what was the number 20, 30, and 40 years back.

On NYC spending $38k student, there is huge admin bloat there as well and average NYC kid is much harder to teach than average Harvard kid. Yes the professor at Harvard should be much higher paid than a school teacher but the class size of 40 wouldn't change the learning of Harvard kids all that much.

Then the question comes down to how much is really spent on research vs actually teaching the kids. In NYC schools, there is not much reasearch happening. Research spending, which most would agree is in societal and natioanal interest, is probably why these universities should still get federal research funds as they are likely the best users of those funds due to top-notch academic talent.

Steve>> using loopholes like Thiel to put private investments @ obscenely high returns in

Steve>> At least Jim Simmons gave his $500M donation to Stony Brook

I’m generally a fan of Jim Simon’s endeavors, more so than Peter Thiel’s. But at least Thiel had the good sense to keep his tax maneuvers within the law, however misguided people may find what Congress clearly legally intended. There are all sorts of caps on everything related to tax, so I’m guessing it wasn’t oversight that they left it uncapped.

RenTech does the same thing with its 401k. But then they pulled some shady shit no other major hedge fund was willing to touch with a 10’ pole for a good decade, ending up with a $7B tax settlement in 2021 for their sins. The largest tax settlement ever. What was Simons thinking when he signed off on that one???

300, I have no clue where all the staff go. But as a university, you count every librarian, custodian, IT person, and cook. And then there’s the small matter of 4500 grad students on the payroll:

https://www.thecrimson.com/article/2021/3/18/labor-mapping-harvard-workforce/

When the crew here takes over Harvard and turns it into the branded instructional university they would like it to become, I might suggest starting with having the faculty teach more than a single course per year. Mandating multiple choice tests should also help cut out grad student expenses.

@nada - was that the basket options settlement? what's interesting to me is that RenTech is the only one to settle.. they certainly weren't the only participant, or so I'm told..

Yep, that’s what I was referring to. Who else major was doing it? I see a single ancillary reference to SAC in the Senate subcommittee report from 2014, one where RenTech shows up ~100 times. No follow-up after that for SAC, despite being in the crosshairs and not exactly being a paragon of legal behavior. So I take that to mean they probably did an insignificant amount before concluding it wasn’t a good idea. But you don’t see Citadel, Millennium, etc. named by the report at all.

E.g., RenTech was the sole participant for Barclays’ program. And one of 13 participants for Deutsche’s program. Over a period when several thousand hedge funds existed, all of whom would have had high incentive to reduce taxes and many whom would have had high means.

>> I've worked for hedge funds, so I don't refer to Harvard as "a large hedge fund with an educational institute attached" as a slur, but as an observation. Both their size ($50B) and at various points staffing (100s) put them will in range of multiple firms I have worked. Certainly the compensation that's been reported looks pretty attractive, career wise!

I don’t know if that’s a fair characterization of HMC these days. Pensions like CalPERS are bigger, doing much of the same thing. HMC’s pay is certainly on the high side (~$5M at the top) relative to market for endowment/pension managers (~$3M at the top on average), but a far cry from compensation at large hedge funds. It kinda feels like a cushy job, nevertheless, but it’s always easier to say that from the outside. Overpaid? Maybe. But much better than the Jack Meyer era at HMC, when he was playing hedge fund manager, having the investment team putting on trades, and paying upwards of $35M/yr when they flipped “heads”. The uproar that kicked him out seems to have proven itself just fine. Harvard’s returns in the subsequent decade or two were fine, while Meyer’s crew ended up flaming out on their attempt to run a real hedge fund. I calculated a return of 2%/yr or so on the average dollar over ~11 years of data I could find.

@ nada re the basket options: Perhaps the sub-committee was offended by Mr. Simons' political contributions (or Mr. Mercer's), and less so by Steve Cohen's or Ken Griffen's?

That’s a good theory, but look at the report:

https://www.hsgac.senate.gov/wp-content/uploads/imo/media/doc/REPORT-Abuse%20of%20Structured%20Financial%20Products%20(Basket%20Options)%20(7-22-14,%20updated%209-30-14).pdf

Both Levin (Dem Chair) and McCain (Rep ranking minority member) signed on wholeheartedly. This was before Mercer became persona non-grata in certain circles. And when Stevie Cohen was persona non-grata in all circles, just around when he was settling the SAC insider trading scandal. With all the potential grandstanding opportunities on both sides, with Dems in control, I have a hard time imagining the Senate letting it slide with SAC. The whole thing is quite quaint, as if we have a functioning government.

As far as dragging Kenny G’s name through the mud here, what the heck? Look at footnote 221 and the table on page 29. They had all the records from the two banks, and it’s literally just 13 hedge funds with no mention of Citadel.

Steve123, do you have any info on it expanding any further? Maybe I’ve got it wrong…

At least one big MM were using the same product at the same brokers at the same time.

Maybe they went with a more appropriate tax treatment, as that wasn't my department.
But then, why would they have been using the product at all then?

Was there any other benefit other than tax rate transformation?

Maybe they quietly settled when challenged by IRS?

I'm not really going to expound further and dox myself here.

I’m way out of my depth, but skimming the report, there is also a leverage aspect, which I guess would make a lot of sense for a market maker?

In fact, according to the last paragraph on page 5, both banks continued offering the product after the IRS issued guidance on the invalidity of long-term tax treatment. The basket options were for less than 1 year, making long-term treatment improper regardless of interpretation. Deutsche went as far as contractually requiring all profits be reported as short-term. So why continue issuance of the claimed tax benefit is gone? Presumably because there are other benefits.

RenTech noted that these products provided more leverage (20:1) than any other setup they explored. I imagine access to high leverage is even more important to market makers.

@nada - MM = multi-manager in this case, not market maker
But as you say, could very well be that the rest were only using it for leverage, in an aboveboard manner after 2010 ruling.

See, that’s how far I am out of my depth — I couldn’t even figure out what MM you were referring to!

There were certainly a dozen funds beyond RenTech listed as clients on the Senate report…

@nada: Thanks for this. I'll take a browse through. I originally thought MM = 'market maker', but as a broker-dealer I think their ability to use it for leverage would be limited by their required capital calculations (ergo why this was being offered by banks to hedge funds).

Well practically speaking a market maker isn't going to be going through a broker dealer like DB/Barclays. They would operate directly on exchange. ie - they would be placing resting orders on exchange order books for the underlying equities, getting paid to provide liquidity while also trying to "make the spread".

They would not want to be several steps abstracted by operating through DB/Barclays via a derivative product.

Aaron2, please let us know of any juicy tidbits you extract from your reading!

>> Both their size ($50B) and at various points staffing (100s) put them will in range of multiple firms I have worked. Certainly the compensation that's been reported looks pretty attractive, career wise!

For fun, you can see HMC’s salary data over the years here:

https://projects.propublica.org/nonprofits/organizations/237361259

They’re paying about $100M/yr in HMC employee compensation against $50B of capital managed. So 0.2% overall. Somewhere else I read they’re down to 120 employees. In one of the years, “only” 8 were paid more than $1M.

I’ll guess total pay at a typical hedge fund of that size is in the billions, based on backing out their typical fees. Headcounts range from several hundred to thousands.

Is HMC paying too much? I dunno, maybe. Should non-profits have anyone under their umbrella paid millions? Perhaps not. But my point is more that they look much more like an asset allocator, like a pension fund, than a hedge fund. Hedge funds don’t work on 0.2%.

https://nypost.com/2023/07/12/boarding-school-students-reveal-pressure-cooker-conditions-after-string-of-suicides/

That is awful. Also, why have kids only to send them away to boarding school for most of the year?

Not uncommon after 8th grade for wealthy families. Their idea is to build indepndence in your 14 year old and if you are not a major city like NYC, top private school choices are limited. Boarding school sports facilities also tend to be top-notch as they have the space and endowment. Your kids can also have exposure to smart and/or rich kids from various cities and countries. It is basically junior ivy league.

Imagine a wealthy family living in Harrisburg PA. Their kid is smart and there will not be any schools which come close to top boarding schools like Exeter near Harrisburg.

When quality education was less universally available, the idea amongst the upper classes of sending your even semi-bright kid off to boarding school was pretty universally accepted. This came from the same cohort that had nannies and governesses, and didn't have as much hands on engagement with raising their kids as modern couples do -- so it looked normal to them. Frankly, I'd advocate that boarding school > 500 miles away from home should be a requirement, rather than an option, for, let's say, the last 3 years of high school. Might improve the parents lives as well as the kids.

> Frankly, I'd advocate that boarding school > 500 miles away from home should be a requirement, rather than an option, for, let's say, the last 3 years of high school.

I guess could be fun for kids for the school year. But not with those suicide statistics.

>Imagine a wealthy family living in Harrisburg PA. Their kid is smart and there will not be any schools which come close to top boarding schools like Exeter near Harrisburg.

Why do they live in Harrisburg?

Krolik, There are many wealthy families in towns/cities like Harrisburg. People have roots, businesses, real estate, and many other high paying profession such as medicine or law in these places.

@300 I know, I was kidding. Some people like the quiet life in nowhere. I am a big city person though, so I personally don't get it.

In other news, the most prestige-obsessed industry is now willing to hire from non-Ivies, allegedly. Interesting.
https://www.wsj.com/articles/private-equity-firms-cast-wider-net-in-search-for-young-talent-a08e49f?

Why is private equity prestige- or Ivy-obsessed, as in why is it important for the business in your view?

1) I think it historically has been a club, hence club-like behavior
Many people who can do this job never get a chance to. The opportunity is reserved for those in the know and with the right connections

2) Cost effectiveness. Ivies do have a lot of really bright and ambitious candidates, including a lot of candidates whose parents are in the industry and provided grooming to their offspring for these roles (mixed in with less bright athletes and legacies, so you still have to screen and interview of course), and if you need to hire just 2-5 candidates, you can go to 1-2 campuses and fill your roster. No need to fly recruiters and interviewers to many campuses, and screen thousands of resumes

3) Funds probably think fancy school backgrounds impress LPs (and they are probably right), so all else equal, they would pick a candidate with a flashier resume

But that does mean funds will miss anyone with a different life story/background who could bring in a fresh perspective. Looks like in a tight labor market, and in a world where new skills are becoming important, they are considering a slight change in strategy.

I have met some extraordinary minds (to me at least) who did not get good grades, but I admit that when I as personally hiring and inundated with more applicants than we could thoughtfully evaluate given the totality of circumstances, I resorted to narrowing the field by grades (though not institution, because I think No. 1 from Nowhere U should always get an interview). My point is that real world employers don't have the luxury of interviewing every applicant, so universities and grades are the best they can do to narrow the field. Brilliant person with poor grades is not reliable employee (means they only perform when they care). Unfortunately the system has inherent flaws that adversely affect the talented individual who may not come from the name university.

Thanks for your take, Krolik.

I don’t know too many people active in PE / VC beyond a handful. Every single one I can think of went to an undergraduate school that would not be considered top-tier. Some later went to a top-tier grad school.

I distinctly remember a conversation with one who was already in VC and on a successful track, but she took a hiatus to go to a top-tier grad school. In her (then) words, “It’s stupid, but I just have to do it because people expect it. I’ll lose 2 years of my life to it, which is annoying now but a blip long-term. So I’ll just suck it up, and it’ll be done.” I used to know her well but lost touch. I check up on her every now & then, and she seems to have a particularly successful career in a tough industry where people come & go. Knowing her from back when, I cannot say I’m surprised. She didn’t consider herself brilliant, nor did I, but sometimes that’s not what the job requires.

In contrast, I also recall one brilliant person who went the VC route. Top schools, crème de la crème in those arenas. Universally considered brilliant by her peers, but also universally considered acerbic. She flamed out of VC rather quickly.