BOSTON: In a sign of the economic times, Harvard University's endowment has lost 22 per cent, or roughly US$8 billion (S$12.2 billion), in the last four months, leaving the world's richest university on track to deliver its worst annual returns in 40 years.
The news came in a letter from Harvard president Drew Faust to administrators, posted on the school's website on Wednesday. She warned that officials expect to see even steeper declines of 30 per cent by the end of its fiscal year in June next year.
This is especially jarring for the Ivy League school, whose worst-ever investment loss was 12.2 per cent in 1974.
Harvard's investment choices are closely watched in the asset management industry, and its money managers are considered among the best in the world.
By relying heavily on alternative investments such as hedge funds, real estate and timber, Harvard has delivered an average annual investment return of 13.8 per cent over the last decade.
In the last fiscal year, ended June 30, the school's endowment grew 8.6 per cent to a new high of US$36.9 billion despite double-digit losses in the broader stock market.
But now it is reportedly considering selling as much as US$1.5 billion in private equity holdings on the secondary market, a measure investors resort to only in the worst of times because such investments sell at steep discounts, the Boston Globe reported.
Ms Faust cited 'severe turmoil in the world's financial markets', and said every major asset class has been affected.
The school relies on its endowment to cover about 35 per cent of its operating budget, she said, warning that the school will need to reduce expenses.
Harvard's Faculty of Arts and Sciences, which relies on the endowment to cover more than half its expenses, announced a freeze last week on most staff hiring.
The letter, however, did not address Harvard's financial aid programme, which was expanded recently to let students whose parents earn between US$120,000 and US$180,000 pay about 10 per cent of their annual income to attend the school. A year at Harvard costs roughly US$45,000.
Slightly more than half of Harvard's undergraduates receive some form of financial aid and the university had initially planned last year to increase financial aid spending to US$120 million, from US$98 million annually.
As early as July, Ms Jane Mendillo, the school's chief investment officer who oversees the endowment, warned that future returns might be lower.
But Harvard is not alone. Colleges and universities across the United States are also struggling. The University of Virginia at Charlottesville's endowment declined about 20 per cent, to US$4.2 billion, in the four months up to October.
State universities in Georgia, California and New York are firing employees, postponing maintenance and cutting library subscriptions.
Among private schools, Princeton University in New Jersey has said it will reduce its 10-year, US$3.9 billion construction budget by US$300 million.
REUTERS, BLOOMBERG
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