Harvard Endowment Slammed with $11B FY Loss

September 11, 2009 (PLANSPONSOR.com) - Illustrating the grievous toll the market turmoil has taken on Harvard University's endowment, a new report indicates the fund shed nearly $11 billion or 27.3% of its value in its most recent fiscal year.

To help stave off repeat problems, the Boston Globe reported that Harvard Management’s new chief, Jane Mendillo (see Harvard Turns to Mendillo to Run $35B Endowment ) is adopting a number of changes, including hiring new investment managers and revamping how the fund looks for investment ideas.

Mendillo also indicated the fund would be rethinking its approach to risk and the extent to which its investment philosophy makes it out of line with Harvard’s financial needs.

According to the Globe, Mendillo is changing the fund’s target allocation to keep 2% of the fund, or more than $500 million, in cash. Harvard went into 2009 with a negative 3% cash in its portfolio,

The beefed up cash position will give the fund needed liquidity and prevent having the need to unload assets at fire-sale prices to raise money, the news report indicated.

The latest portfolio data from Harvard Management put the endowment’s bottom line at $26 billion at June 30, compared to $37 billion the year earlier. Since Harvard relies on the endowment for one-third of its annual budget, the losses forced it to slash expenses and lay off 275 people in June, the Globe said (see Harvard Endowment Slashes Staff ).

Long term, the Harvard endowment is still well ahead of similarly sized funds. It’s gained an average 6.2% annually for the past five years, compared with 2.5% for similar funds tracked by Wilshire Associates.

According to the Globe, the fund’s hedges in hedge funds, private equity, commodities and natural resources didn’t lessen the blow from plunging markets. Harvard Management indicated that if it had fielded a portfolio of 60% stocks, 40% fixed income, its losses would have been cut in half.