Harvard University's endowment has suffered investment losses of 22% or $8 billion since June 30 when it stood at $36.9 billion. According to President Drew Gilpin, the 22% loss understates the actual decline in the endowment because it doesn't reflect certain assets, including private equity and real estate, for which estimates of their drops weren't yet available.
Harvard's prior worst single-year investment loss was 12.2% in 1974, when the endowment stood at less than $1 billion and its funds contributed far less to the school's operations. Currently, income from the endowment funds 35% of Harvard's $3.5 billion budget.
Harvard's loss is especially striking given the endowment's formerly chart-topping investment performance. Since 1974, Harvard's endowment suffered only three other down years, ranging from negative .5% to -3%. Harvard and Yale, which has performed equally well, led an institutional move into exotic and illiquid investments, including timber land, real estate and private equity funds. While that strategy helped the schools sidestep the much of the carnage in the aftermath of the technology boom in 2000. it won't be so kind this time around.
Other endowments have copied the Harvard and Yale approach. Moody's Investors Service, the bond rater, estimates that college endowment losses averaged 5% to 7% in the year ended June 30. Since then, including spending and stock market losses, Moody's figures colleges experienced another 30% decline in cash and investments.
My undergraduate school, my law school and my business school have recently contacted me with an urgent plea to contribute. I, for one, wouldn't dream of giving an additional cent to any insitution that so naive put so much money into such dangerous investments.
One other thought - I really like the way that Mohammed El Erian was treated as a hero for making so much for Harvard before quietly (or not so quietly) disappearing to Pimco. Isn't he the one who put Harvard into these things? Is he going to be held to task, or will any of the money managers at non-profits who plowed money into these things be held to task?
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