How Is a Hedge Fund Like a School?

Every few months, I draw your attention to one article that you really should read -- this is one of them.

 

After being such a kick-ass investor for so long, I guess it's hardly surprising that Joel Greenblatt would also be a kick-ass philanthropist -- but then again, most really successful investors/businesspeople I've observed are totally lame philanthropists, giving very little and/or giving to institutions that are already fabulously wealthy -- perhaps because they don't know any better, it's easy, and/or it's in their self-interest (e.g., networking, fancy dinners and events, etc.).  Take my alma mater for example: is there ANY charity on the planet that is LESS needy than Harvard University?!

 

I hope what Joel has done not only inspires other schools and school districts to copy this success, but also inspires other people who are similarly situated to be much more engaged and strategic in their philanthropy.

Today, thanks to Joel Greenblatt’s friendly takeover, P.S. 65Q is a turnaround story worthy of a Harvard B-school case study. Perhaps no school in New York City has ever bounded so swiftly from abject failure to unqualified success. From 2001 to 2005, the proportion of fourth-graders passing the state’s standardized reading test doubled, rising from 36 to 71 percent of the class—and since then, the students’ performance has only gotten better. Nearly every child who has been at the school for three years or more now reads and does math at their proper level or beyond—even the special-ed kids. Last spring, the school was one of fourteen statewide to win the public-school version of the Nobel Prize: a Pathfinder Award for improved performance. The city schools that usually win are in rapidly gentrifying neighborhoods like the Lower East Side or Fort Greene—what one P.S. 65Q administrator calls “God’s country.”...

But Greenblatt’s plan is more ambitious. He wants to create an effective and affordable public-school prototype that could be franchised citywide—and fast. “I’m an investor,” he says. “I spend my time trying to figure out whether a business model works or not. I wanted to find a model that worked and roll it out.”

P.S. 65Q is the first school off the line. There, Greenblatt has expanded the Success for All program, brought in sophisticated data-analysis tools to track each child’s progress, and hired a staff of outside tutors to step in quickly when kids need help. But what makes the success of P.S. 65Q especially remarkable is how little, relatively, it has cost. The extra $1,000 per child Greenblatt has invested amounts to less than a 10 percent increase over the approximately $12,500 that the city spends on average per child—and well below what some private schools pay for the same kind of results. “Given all the negative costs of not educating the kids—more crime, fewer taxpayers, less productive people—it was less than free,” Greenblatt says.

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How Is a Hedge Fund Like a School?

Hedge-fund guru Joel Greenblatt applied Wall Street principles—and $1,000 per student—to turn around a struggling Queens elementary school. And it worked, spectacularly.

By Robert Kolker, New York Magazine, 2/20/06

http://www.newyorkmetro.com/news/businessfinance/15958/

On a weekday morning in the spring of 2002, Joel Greenblatt took a radical detour from his usual commute. Instead of riding the Long Island Rail Road from his home on the North Shore to his office in midtown, the 44-year-old hedge-fund manager hired a car service to deliver him to P.S. 65Q, a small, struggling elementary school in working-class Ozone Park, Queens. Little about his past pointed to this visit. Over the previous two decades, Greenblatt had quietly built a reputation as one of Wall Street’s most successful stock-pickers: He had steered his fund, Gotham Capital, to a 40 percent average annual rate of return (it’s now worth about $1.6 billion), and as the author of investment manuals like You Can Be a Stock-Market Genius (Even If You’re Not Too Smart)—the predecessor to his current best seller, The Little Book That Beats the Market—he’d become something of a guru to a generation of elite fund managers. But that morning, Greenblatt was taking a break from Wall Street to focus on the less glamorous world of New York public schools.

P.S. 65Q had opened several years earlier to serve a growing population of extremely poor South American and South Asian immigrants. Housed in a former airplane-parts factory, the school sits on an industrial street with no homes in sight, in the shadow of the elevated A train. The vast majority of the school’s 540 students couldn’t read or do math at the proper grade level, and their parents were largely too beleaguered or disengaged to help.

At the time of Greenblatt’s visit, P.S. 65Q was staring down the loss of an important grant. Under Iris Nelson, the principal who had started at the school a year after it had opened, P.S. 65Q had secured government funds for a reading program called Success for All. The program had led to some promising gains in reading scores, but the grant was expiring at the end of the year. Greenblatt, who had developed an interest in public education only a few years earlier, had become a fan of Success for All and was looking for a school where he could introduce or broaden the program to boost overall achievement. The Success for All Foundation’s director, Bob Slavin, arranged a meeting between Greenblatt and Nelson to try and make a match.

The principal and her staff hadn’t been told much about Greenblatt—just that he was a wealthy banker interested in discussing a contribution. In Nelson’s office, Greenblatt didn’t let much time pass before making it clear his visit wasn’t about just a grant. “I want to keep spending money,” he said, “until everyone can read.”

Nelson struggled to contain her disbelief. Before long, she and Greenblatt were touring the school. About the only thing that didn’t get settled that day was how much money, exactly, Greenblatt would give. Before he left, he asked Nelson to put together a grant proposal.

For weeks, Nelson fretted over how much to request. Finally, she decided to take Greenblatt at his word: To keep everyone from falling behind, she calculated, it would take an incremental $1,000 per student per year for five years, or $2.5 million.

Greenblatt had clearly done his homework. “That,” he told her later, “is exactly what we thought you’d need.”