Harvard Loses Billions in Investments

Harvard Univ. has acknowledged that it lost about $1.8 billion in investments over the past year, along with an $11 billion decline in the value of its endowments, and another $500 million in losses realized in connection with their interest rate exchange agreements, according to Harvard's recently published annual report and an interview by the Harvard Gazette with Jim Rothenberg, Harvard's treasurer.

"All of these were a function of last year's extraordinary market conditions," says Rothenberg. "As is the case for many other institutions, our financial landscape looks very different from a year ago, even if one assumes a reasonable recovery."

According to Harvard's CFO, Dan Shore, "Harvard's financial position remains fundamentally sound. We still have the largest university endowment, and an excellent team to manage it. Our investment approach, despite the past year, produced cumulative 10-year returns that far exceed what we would have realized from a 'plain vanilla' 60-40 stock-bond portfolio."

That said, there are serious broad-based efforts to reduce expenses across the university, according to Shore, including reducing operating redundancies and inefficiencies.

Shore admits that the matching of near-term liabilities with more liquid assets at Harvard was out of balance in recent years and in 2008, they began rebalancing by moving some of these assets into safer, more liquid investment vehicles. That effort was suspended in Harvard's fiscal 2009, but has now been resumed.

"It's clear that, when you look at the endowment returns for the past year, Harvard did worse than some of our peers," says Rothenberg. "But, if you take a several-year look at it, it's quite a different picture. There's no real implication that Harvard has not participated in the markets."

"The losses reported in our financial statements are already in the mindset of the university," Rothenberg continues. "We've been planning for reductions in endowment payout over a couple of years, as many other universities have. The hope is to arrive at a 'new normal' reasonably soon."

Source: Harvard University