Harvard's Endowment Taking Big Hit

by Chris Sturr | December 04, 2008

Our contacts at Harvard’s Faculty of Arts and Sciences (the division that includes Harvard College and the graduate school) told us that there is a pretty drastic hiring freeze because of losses to the university’s endowment. Staff also received an email from the university’s president, Drew Faust, in which (according to our sources) she said that Harvard may have to take out loans to cover operating expenses for the rest of the fiscal year. Departments have been told to cut back spending, including items that are part of this year’s budget, and including taking steps like turning the lights off during the day when no one’s around.

The reason? Harvard’s $36.9 billion endowment is down 22% this year, and could be down by 30% by the end of the fiscal year. And the reason for that seems to be that much of the endowment was invested in private equity (which accounts both for the losses and for the uncertainty about how much will be lost).

More details in an article from today’s New York Times business section:

Harvard Endowment Loses 22%

By GERALDINE FABRIKANT | December 3, 2008

In a sign of the economic times, Harvard has sent a letter to its deans saying that the university’s $36.9 billion endowment fund lost 22 percent of its value in the last four months and could decline as much as 30 percent by the end of the fiscal year on June 30.

Normally Harvard reports on the endowment’s performance once a year, but the letter signed by the university’s president, Drew Faust, and its executive vice president, Edward C. Forst, cited the “current extraordinary circumstances” as the rationale for providing an interim report.

Harvard depends on its endowment for about 35 percent of its operating budget, and some of its schools rely on endowment income to cover more than 50 percent of their expenses. As a result, the letter noted that the endowment’s performance would have a significant impact on budgets. The decline, about $8 billion, does not capture the full extent of losses, the letter said, because some investments are harder to value and are valued only periodically.

For example, at the end of its fiscal 2008 year, Harvard said it had 11 percent of its holdings in private equity, 9 percent in timber and agriculture, and a comparable amount in real estate. Each sector has been hard hit in the current environment, but it is difficult to quantify the decline on a daily or monthly basis. Harvard noted that its private equity and real estate investments are managed externally. Experts say that those markdowns could prompt a decline of an additional three or four percentage points.

Read the rest of the article.

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