US - Harvard University's endowment has lost $8bn (€6.3bn) of investments in the first four months of the university's fiscal year and is expected to deliver the worst annual returns in 40 years, officials have announced.

Harvard's endowment, which is the largest university endowment in the United States and had asset under management of $36.9% at the end of June, lost approximately 22% of its investments in the three months between July and October 31 as a result of the financial crisis affecting all major asset classes, including real estate.

Harvard said the loss might be greater once it takes into account the falls in value for externally-managed asset classes like real estate and private equity, so officials are preparing for a 30% decline in value for the year.

Drew Faust, Harvard University president and Edward Forst, executive vice president, claimed in a letter addressed to Harvard's Deans "the severe turmoil in the world's financial markets has affected all major asset classes in which the endowment is invested".

A spokesperson for Harvard University said they could not reveal how their real estate assets were performing as they are still waiting for valuations to come in and will not issue the report until June 2009.

According to Faust and Forst, Harvard's worst single-year endowment return in the last 40 years was -12.2% in 1974 and since then the endowment has had only three years of negative performance.

Harvard's endowment funds approximately 35% of the University's operating budget, so the loss is likely to have a significant impact on finances and planning.

"The implications will differ in degree from school to school and department to department. But all of us will need not merely to contemplate changes at the margins, but to take a more fundamental look at how to align our spending with revenues that will be significantly reduced from what we had imagined just a few months ago," said Faust and Forst.

The letter insisted the University is currently working with each school to reduce overall spending by "reconsidering the scale and pace of planned capital projects".

Harvard plans to issue a large amount of new taxable fixed-rate debt to ensure it can keep addressing academic and research priorities and convert a significant amount of short-term tax-exempt debt into bonds to reduce its exposure to volatility in the markets.

According to the Harvard Manager Company's annual report for fiscal year 2007-2008, Harvard University's real estate portfolio returned 3.2% and focused primarily on opportunity funds but also on Real Estate Investment Trusts (REITs) traded in the public market.

Other university endowments have also been hit, as the University of Virginia Investment Management has lost almost $1bn -18%, of its endowment over the same time period.

Both Grinnell College in Iowa and Amherst college in Massachusetts have also recorded a 25% fall in their endowments, while in Vermont, Middlebury college's endowment has fallen by 14.4% to $724m.

Topics