Harvard endowment loses $8bn in six months

Harvard’s endowment has lost 22% of its $40bn portfolio value since June. It is bracing for up to a 30% drop in value for the year, once its receives fully updated private equity and real estate valuations.

Harvard University’s endowment has lost $8 billion, or 22 percent, of its portfolio value since 30 June when it reported a value of $36.9 billion. The university expects losses to increase once it has fully updated valuations for private equity and real estate. 

In total, Harvard could lose up to 30 percent of the value of the endowment for the year, Drew Faust and Ed Forst, the university's respective president and vice president, wrote in a letter to the school’s deans. The endowment is managed by the Harvard Management Company, which is led by chief executive Jane Mendillo.

“Severe turmoil in the world’s financial markets has affected all major asset classes in which the endowment is invested,” Faust and Forst said in the letter. “Yet, even the sobering figure is unlikely to capture the full extent of actual losses for this period, because it does not reflect fully updated valuations in certain externally managed asset classes, most notably private equity and real estate.

“We continue to plan for a scenario in which our endowment is down 30 percent in value for the year,” the presidents said.

The losses are a reversal from the endowment's performance for fiscal year 2008, which saw total returns of 8.6 percent.

The endowment’s worst performance prior to this year occurred in 1974, with a return of negative 12.2 percent. At that time, the endowment was valued at less than $1 billion and funded a smaller proportion of the school’s operations, the letter said.

To make up for the losses, the university is planning to issue “a substantial” amount of new taxable fixed-rate debt, as well as convert existing short-term, tax-exempt debt into bonds with longer maturities, the letter said.

Harvard has a target private equity allocation of 13 percent for the 2009 fiscal year, up from 11 percent in the prior fiscal year. The endowment has about $4.5 billion in private equity commitments.

The firm has been trying to sell about $1.5 billion in private equity stakes on the secondaries market.

Harvard did not respond to a request for comment by press time.