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How Is a Hedge Fund Like a School?


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.

Education experts are quick to point out that Success for All, which depends heavily on scripted material, is at odds with the more flexible curriculum Bloomberg and Klein have instituted. Greenblatt himself concedes that some ingredients of school success, like the experience and talent of an Iris Nelson, are difficult to replicate. And Greenblatt may have skirted some union rules by using his own money to hire outside tutors. Still, there’s an argument to be made that he has done in four years what many public schools have proved institutionally incapable of doing, period. Which raises the question: Should all city schools be run like a hedge fund? And should the mayor and his chancellor be taking notes?

Scrutinizing business strategies is second nature to Joel Greenblatt. Given the chance, he’ll happily go on about how Wal-Mart went on to clobber Kmart because it waited to roll out stores until its distribution model made sense. It’s lessons like this, he says, that have informed his decisions with P.S. 65Q.

Born in Great Neck and educated at Wharton, Greenblatt started Gotham Capital in 1985 with $7 million from investors, much of it from junk-bond impresario Mike Milken. He also founded the New York Securities Auction Corporation, a junk-bond trading firm, and for a time he chaired the board of a Fortune 500 aerospace-and-defense company called Alliant Techsystems. Like many other investors in the nineties, Greenblatt fell under the spell of Warren Buffett. He strayed from his hedge-fund perch to preach the back-to-basics gospel, teaching at Columbia Business School and running the Value Investors Club, an online community for high-level investors searching for undervalued companies. In 1997, Greenblatt published You Can Be a Stock-Market Genius, which sold a reported 38,000 copies and went on to become something of a cult classic among a growing coterie of hedge-fund managers.

By the time Greenblatt was entering his forties, Gotham had returned all its outside capital, and he and his partners were running their own money. In his charity work, he became drawn to the schools. “I think capitalism is a great system, but that’s if everyone has a fair chance,” he says. “And education is the most unequal system of anything I can think of.” About eight years ago, he joined the board of a nonprofit that focused on middle-school and high-school reform. Watching teenagers struggle, he started to wonder if his approach to business could help find a way to produce a decent, affordable public education before it became too late for kids to catch up. His core question—what would it cost to get every kid to the right level?—is the one policy-makers have been asking about the city’s schools for years.

Greenblatt had long taken it as self-evident that public schools are a creaking monopoly desperately in need of innovation. The infrastructure is woefully undercapitalized, for example, and the teachers are protected by a 200-page contract that turns hiring and firing into a bureaucratic nightmare. And the peculiar widget that the schools are supposed to produce—a decent education for 1.1 million children from every conceivable background—stubbornly resists standardization. Greenblatt was especially bothered by the seemingly universal acceptance of unambiguously low standards. Why, for instance, does the city celebrate every time test scores drift upward a few percentage points—when half the students are still reading below grade level? Numbers like that in his world would end in bankruptcy or a stack of lawsuits. The closer Greenblatt looked at the situation, the more bleak it seemed. Take, for starters, the fact that only 53.3 percent of New York City high-school students end up graduating within four years. And that doesn’t even count students who reenroll elsewhere. This could mean that something like only one out of every three entering high-school students bothers to stick around to get a diploma—and in certain poorer neighborhoods that number could be a lot lower. The M.B.A. in him saw a productivity problem, and a tempting challenge.


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