Yeshiva U. Board’s Culture of Risk-Taking Led to $500M Meltdown
A culture of high risk-taking among Yeshiva University trustees resulted in Y.U.’s investment portfolio losing more than $500 million in the 2008 financial crisis, according to a two-year investigation by TakePart in association with The Jewish Channel.
The investigation also found that since the crisis, Y.U. has spent down reserves and borrowed heavily even as the university has faced mounting operating deficits.
Today, Modern Orthodoxy’s flagship institution faces its biggest fiscal crisis in more than 30 years. The university has more than $500 million in debt, according to the bond ratings agency Moody’s, which recently downgraded Y.U.’s debt to junk status. Earlier this year, Y.U. sold ten buildings for $72 million. In May, Y.U. was forced to cede control of its flagship medical school, the Albert Einstein College of Medicine, to Montefiore Medical Center.
According to The Jewish Channel, much of Y.U.’s financial woes are of its own making.
Y.U.’s trustees liquidated most of the university’s low-risk Treasury bonds following a change of leadership in 2003. Instead, trustees poured hundreds of millions of dollars into high-risk investments.
Y.U.’s losses to Bernard Madoff, who ran a Ponzi scheme until it collapsed at the end of 2008, are often blamed for its fiscal crisis; those losses amounted to an estimated $100 million. But by the time of the national recession earlier that year, 80% of Y.U.’s portfolio was in high-risk stocks and hedge funds — a riskier investment strategy than just about every college in America, the channel reported. As a result, the school’s investments plummeted by $525 million between 2007 and 2009.
The high-risk strategy was overseen by Richard Joel, Y.U.’s president since 2003, and Morry Weiss, chairman of Y.U.’s board since 2004, the Jewish Channel reported. The strategy was led by Y.U. board members from the hedge fund world, who treated the school’s investment policy as if it were a hedge fund.
Board members, particularly investment committee members, also had frequent conflicts of interest because their firms regularly conducted business with Y.U., the channel reported.
The channel’s investigation, conducted with TakePart, a digital news and lifestyle magazine, also found that Y.U. has borrowed heavily to finance and expand the university’s schools. Between 2001 and 2008 spending at the school increased by 68%, even as revenues rose by only 25%.
During the past six years, as Y.U. has struggled through operating losses of tens of millions of dollars, spending has risen by 33%, according to the channel.
Y.U. rejected the report’s conclusions in a statement.
“It’s unfortunate that Yeshiva University wasn’t given sufficient opportunity to react to the TakePart article, which is full of half-truths and inaccuracies from as far back as a decade ago,” the statement said. “The writer, who admits that he has an axe to grind with YU, claims to have worked on the article for two years, but contacted YU less than two days before publication, presented limited information that he planned to report and ignored most of what he was provided. Given the poor quality of this article apparently written for no purpose other than to damage YU, we will remain focused on the future and have no further comment on this matter, other than to share that YU has invested in its core, our students and faculty, with great results, and will continue to do so. Today, YU’s investment portfolio is strong and professionally managed by our investment office with careful board oversight and best-in-class conflict of interest policies in place.”