Wed, December 03, 2008
If It Makes You Feel Any Better, Harvard’s Portfolio Lost Big, Too
A comment that I've heard several times in the last few weeks is, "I took a look at my 401(k)/mutual fund statement and it was really depressing." Well, take heart: at least you're not down by eight billion dollars....
Various sources are reporting today that Harvard University’s endowment has experienced investment losses estimated at 22% since June 30, the end of the school’s fiscal year. Since the portfolio was at almost $37 billion then, that translates to a loss of about $8 billion. The Associated Press and other sources are reporting that Harvard President Drew Gilpin Faust has broken the news to the university’s deans.
According to Wikipedia, in 2007 there were only five other university endowments larger than $8 billion: Yale, Stanford, Princeton, the U. of Texas system, and MIT. So this loss is roughly equivalent to vaporizing the endowment of Columbia, or the University of California system, or U Penn....
Actually, the impact is worse than this, because this figure doesn’t reflect probable losses in the endowment’s private equity and real estate holdings, which are harder to value but also likely have taken big hits. Harvard is planning for a 30% overall decline.
The news sheds light on a letter sent by President Faust on November 10th to alumni and others. In it, she alluded to a projection by Moody’s that college endowments would drop by 30%; it sounds like that was a good estimate. To Harvard’s credit, it plans to continue its commitment to providing a free education to qualified students whose household incomes are under $60,000 and ensuring that families with incomes under $180,000 won’t have to pay more than 10% of income to send a child to college there.
This is a grim portent for other colleges and universities, as none of them have Harvard’s resources. Yale, in the #2 slot, had about $10 billion less in its endowment earlier this year. There’s a good chance that several colleges will go out of business in the next couple of years.
It’s also intriguing that Harvard’s vaunted money managers, who’ve had extraordinarily good returns in most years, were not able to do better than a lot of small investors in 2008. A 30% drop is in the ballpark of where a diversified portfolio that began the year with 55-70% in stocks might be now.
P.S. An editorial apology: Today a friend brought to my attention the fact that if you follow this blog in Google Reader, you get a duplicate post after I make an edit. I’m sorry about that; I’ll try to figure out how to make it stop, but I can’t promise that I’ll succeed....
