Harvard’s Endowment Plunges 27 Percent

Nothing is safe from the economic fallout of the current recession. That point was made vociferously today with the announcement by Harvard University that the school’s endowment plunged 27.3 percent this past year, a loss of about $11 billion dollars. Harvard’s endowment—still, by a ridiculous margin, the largest in the country—now sits at around $26 billion.

Once again: $11 billion, gone, out the window, into the street, and, monocle set at a shamed angle, off down Mass Ave. and into thin air.

While those numbers are shocking in themselves, perhaps the most fascinating statistic is that the net loss is itself greater than the total endowments reported by all but four other colleges—Yale, Stanford, Princeton, and the University of Texas system—in 2008, according to the National Association of College and University Business Officers. This comes on the heels of a year in which Harvard saw its endowment rise 5.5 percent to a record high of over $36 billion.

As a result of the drop, close to 300 people have already been laid off; Harvard is heavily reliant on its endowment for annual funding, so some cuts were expected. No word yet on whether more will be trimmed now that the numbers are official.

So what caused the sudden turnaround?

Though the university received over $1.6 billion in contributions this past year—a record high—just about every other source of funding for the endowment fared horrendously. A report issued today by the Harvard Management Company, which oversees the endowment, states quite bluntly that, “With a few notable exceptions, nearly every asset class did poorly.” Real estate assets alone dropped over 50 percent.

According to the report, a major source of the decline was the “lack of ready access to sufficient liquidity going into the financial crisis.” Essentially, too much money was tied up in big investments. When the crisis hit, money managers everywhere tried to dump holdings to raise cash and reduce risks, thereby creating an even bigger market crisis. Harvard was one of the many whose huge portfolio could not be converted to actual money fast enough, so when the investments went bust, the university suffered staggering losses.

As for moving forward, the report cites vague reasons for optimism, such as a stronger management team and the almost meaningless statement that this team will be “alert to new and different ways of looking at what have become the traditional models,” of investment. While it does signify that the college will try a new approach, it still does not specify what that approach will be. There is a reference to increased liquidity, but no assurance that it will be a long term thing, especially given the university’s past bold investments and desire—if not need—for a huge endowment to perpetuate its academic dominance.

Harvard is not alone. Yale University, which boasted the second largest endowment last year, announced today that it too had lost billions from the financial fallout. According to Reuters, that school’s endowment contracted by 30 percent in the last fiscal year.

Though it is unfortunate to see academic institutions suffering, it is, like the broader financial collapse, just another example of greed taking the shins out from under the proud and the privileged. Hopefully the university will learn from its mistakes and not gamble so recklessly on its students’ educations in the future.