Wikinvest Wire

Harvard endowment fund loses $8 billion

Wednesday, December 03, 2008

From the Harvard Crimson:

Harvard’s endowment—the largest in higher education—fell 22 percent in four months from its June 30 value of $36.9 billion, marking the endowment’s largest decline in modern history, University officials announced yesterday.

The precipitous drop will require Harvard’s faculties to take a “hard look at hiring, staffing levels, and compensation,” wrote University President Drew G. Faust and Executive Vice President Edward C. Forst ’82 in a letter informing the deans of Harvard’s losses.
The estimate of 22 percent may not fully capture the actual losses from this period, Forst said in an interview yesterday, as some of Harvard’s money is invested with external managers that have yet to report their latest figures. Faust and Forst wrote in yesterday’s letter that the University should plan for a 30 percent drop-off in endowment value for the year ending June 30, 2009.
Unless a miraculous recovery occurs between now and next summer, the current fiscal year performance will be the worst since a 12.2 percent loss in 1974, one of only three years of negative returns in more than thirty years.

For obvious reasons, the endowment fund managers are said to favor a high level of cash holdings and a reduced level of risk in the future.


Anonymous said...

The Harvard Trustees should each be sued by Harvard for negligent trusteeship! They should have been mostly in Gold!

I, an financially untrained ordinary guy saw this coming two years ago and put my IRA into the gold ETF (GLD) and have made out like a bandit! If I could see this situation comming, why not the experts?

Anonymous said...

I am a financial advisor, attorney and business owner. And Anonymous is right to a degree (no pun). Gold is extremely volatile and one should never put all of their funds in gold or in equities and hedge funds. Proper asset allocation (including a portion in gold) would have prevented this debacle. Harvard has outperformed other endowment funds for such a long period and by such a large margin that it was obvious that there was too much risk in the portfolio based on the huge returns gained in the past. And with all of the brains and talent, not one of them saw the risk coming. Nor did all of the geniuses from Goldman Sachs that are paid huge sums to invest in the market. The truth is that, in the long term, few money managers outperform the indexes and it is impossible to tell ahead of time which ones will be successful. The expense of managing these funds have a dramatic negative effect on performance. As Anonymous put it, "they should all be fired" but they most likely have golden parachutes in their contracts which allows bad performance to be rewarded.

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