Harvard's endowment drops sharply amid recession

[September 11, 2009]  BOSTON (AP) -- The total value of Harvard's endowment plunged nearly 30 percent in the last fiscal year as the Ivy League institution's portfolio was battered by the worldwide recession, the university's management company said.

The endowment stood at $26 billion on June 30, after distributions and donations, the university said Thursday. It stood at $36.9 billion 12 months earlier, at the close of the previous fiscal year. The decline had already prompted a number of moves by Harvard in recent months, including the elimination of 275 staff jobs and a freeze on salaries.

Harvard Management Company president and CEO Jane Mendillo said its portfolio was impacted by "extreme volatility and financial dysfunction." But she said the long-term performance of the endowment remained strong, with a 5-year annualized return of 6.2 percent and a 10-year return of 8.9 percent.

"In navigating the past year's storm, we developed greater financial flexibility, strengthened our investment team, sharpened out focus and positioned both HMC and the endowment to be robust, steady and, importantly, poised to benefit from growth in the world's economies," Mendillo said in a statement.

HMC said in a report that the decline was in line with other major universities and that even after the decline, Harvard's endowment remains significantly larger than any other university.

Separately, Yale University reported its endowment was down 30.4 percent in June from a year earlier, to $16 billion. Brown University said its endowment declined almost 27 percent, to $2.04 billion.

Harvard's endowment distributed $1.7 billion to the university in fiscal 2009, amounting to more than one-third of the school's operating budget, according to the statement.

The decline in investment performance -- excluding donations and distributions -- was 27.3 percent, according to Harvard spokesman John Longbrake.

Harvard also said that despite the drop in the endowment, the school remains committed to a financial aid initiative directed toward lower- and middle-income families, with support for undergraduates expected to increase by nearly 7 percent this year.

Mendillo wrote in the report that the market downturn provided an opportunity for a strategic reorientation. She said HMC took actions to "reduce leverage and position ourselves to explore the most attractive investment themes that we foresee emerging from the crisis we have experienced."

She said the portfolio was rebalanced toward undervalued assets and that uncalled capital commitments were decreased by roughly $3 billion.

Mendillo conceded that in "perfect hindsight," Harvard could have started the year in a more liquid position with less exposure to alternative asset categories that were hardest hit in fiscal 2009.

Julia Bonafede, senior managing director for Wilshire Consulting, said the strategy of institutions like Harvard and Yale to invest in private and less liquid asset classes may have kept them from realizing market improvements in recent months. Depending on the quality of the investments going forward, she said it is "reasonable to expect sometime in the future they will be able to participate in the rebounding of those asset values."

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On the Net:

Harvard Management Company: http://www.hmc.harvard.edu/

[Associated Press; By BOB SALSBERG]

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