Thursday, 19 June 2014

YU "Heading For Bankruptcy"



According to a report by Takepart and The Jewish Channel, Yeshiva University (YU)  has lost some $1.3 Billion over the past years, due to a potent mix of corruption and incompetence - and is heading to insolvency in a matter of months.

This is not just a story of Bernard Madoff - whose nefarious Ponzi scheme cost YU $110 million in 2008.

Nor the potential civil liability in the cases of alleged child abuse by two rabbis, at $380 million - which has recently been dismissed by the judge, John G. Koeltl of United States District Court in Manhattan - due to the expiration of the statute of limitations.

This is instead a story of befuddled financial management, at best, and corrupt practices at worst.

According to Takepart, the story started with Rabbi Norman Lamm's appointment as President of YU in 1976. At that time YU was also facing financial disaster, and Rabbi Lamm appointed Gedale Bob Horowitz of Salomon, to serve on the school’s board and create an investment committee, under the VP Sheldon Socol.

Not only did this team turn around YU from the red, into the black - but under their careful management, the YU endowment reserves grew to the then staggering $1 Billion, up there with Ivy League and other leading universities.

With Rabbi Lamm's retirement in 2002, the old guard was replaced by Richard Joel and Morray Weiss who recruited a team of young investment savvy fund managers, such as Ezra Merkin of Ascot Partners, who was Chairman of the investments committee - while creaming away multi-million handling fees for placing YU's investments into his own fund.

"Indeed, it appears that the trustees could view conflicts of interest as a reason to bring someone onto the board or its investment committee. Redwood Capital’s Jonathan Kolatch joined the investment committee in 2003, after his fund proved a good investment for $20 million of Yeshiva’s money for the prior three years. Millennium Partners’ Israel Englander joined the board after years of managing at least $50 million of Yeshiva’s money going back to at least 2002. By January 2008, the investment committee had at least two more members who were hedge fund managers and had Yeshiva money invested in their funds: Daniel Schwartz of York Capital Management and Lonnie Steffans of Spring Mountain Capital."

The fat cats on the investment committee oversaw the divestment of YU's endowment fund, from low risk conservative Government bonds, to leveraged speculative investments in hedge funds.

In parallel to putting solid savings and government bonds into risky paper products, YU also spent themselves into debt - to the tune of some $100 million each year in spending deficit.  

When everything went grim in 2008 - the collapse of the markets and the emergence of Madoff's scam, YU continued to pursue high risk financial investments, which failed to ride on the wave of the rising stock markets, and kept running up deficits.

Today, Moody has written off YU's own bond as "junk" - and YU's losses, in both failed investments and ongoing budget deficits stands at a whopping $1.3 Billion.  

"Yeshiva ran its sixth consecutive multimillion-dollar deficit, $64 million in 2013. Since 2008, the school’s deficits have totaled $470 million. Yeshiva’s investment portfolio stands lower today than it did in 2003, before Lamm and Socol left; after adjusting for inflation, the school’s investment portfolio has lost 23.5 percent of its value under the new administration, or $324 million. The school is now $567 million in debt, according to Moody’s January 2014 report, with its bonds recently downgraded by Moody’s to junk status."



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