Harvard University a Hedge Fund?

There was a recent article about Harvard University's massive endowment fund and how, in at least one person's point of view this simply looks like a large tax-free hedge fund. This is a hot issue right now since the WSJ recent reported that, "Massachusetts legislators, demonstrating a growing resentment against the wealth of elite universities in tight economic times, are studying a plan to levy a 2.5% annual tax on the portion of college endowments that exceed $1 billion. The effort takes aim at one of the primary economic engines of the state, which is home to nine universities with endowments that surpass the $1 billion level, led by Harvard University's $35 billion cache, the nation's largest."

Here is the opinion of Jim Manzi who is with NRO. "When tax-advantaged non-profits start to accumulate billions of dollars of cash through investment gains, and the insiders seem to be doing very well, it creates legitimate pressure for some legal changes. There is a broad range of alternatives: capital gains taxes on investment income, directly taxing the endowment, placing limitations on employee compensation, and forcing the distribution of a fixed percentage of the endowment are all obvious choices." This article continues to criticize the pay of professors at Harvard University as well as other issues related to their investment vs. donation income last year.
I am biased so all I will say is that I thought this was pretty interesting and I only wish we had more non-profit organizations with over $40B under management.