Harvard endowment lost 22% in last four months

The world’s richest university, Harvard University, is expecting its worst ever annual returns in four decades, with its endowment lost 22 percent, or roughly $8 billion, in the last four months. The decline brings the school’s endowment from $36.9 billion on June 30 to $28.7 billion by the end of October.

Citing “severe turmoil in the world’s financial markets”, Harvard President Drew Faust said every major asset class has been affected.

Faust told administrators about the loss in a letter dated December 2, and warned that officials expect to see even steeper declines of 30 percent by the end of its fiscal year in June 2009. However, the letter did not address Harvard’s financial aid program, which was expanded recently to let students whose parents earn between $120,000 and $180,000 pay about 10 percent of their annual income to attend the school.

Faust also said the school is reconsidering the scale and pace of planned capital projects, including a prominent expansion of its Cambridge campus across the Charles River into the Allston part of Boston. In addition, the school is “taking a hard look at hiring, staffing levels and compensation to reduce overall spending.”

Harvard, like many other institutions, relies on revenue generated by its endowment to cover operating costs - income distributed from the endowment now funds 35 per cent of its overall operating budget, with some of its schools relying on it cover almost 50 per cent of their expenses. A report issued by Moody’s Investors Service said that most university endowments had declined between 15 and 30 per cent between August and November.