Harvard, the wealthiest university in the US, is as vulnerble to the global economic turmoil; it lost 22 per cent or $8 billion of its $36.9 billion portfolio, bringing the endowment down to $28.7 billion by the end of October and is looking at a 30 per cent decline for the fiscal year ending in June 2009.
The Ivy League school, which invests a substantial amount of its endowment in hedge funds, private equity funds, commodities and real estate said that it is looking at a 30 per cent decline as it is not able to determine the level of the actual loss as it is difficult to reflect fully updated valuations in private equity and real estate.
Ten years ago, the endowment provided 17 per cent of Harvard's operating budget. Today that figure is about 30 per cent.
Last month, Harvard's president, Drew Faust, said that the university is looking for ways to reduce spending across the campus, raising the prospect of cuts to programs and compensation, as Harvard's endowment plummets. (See: Harvard University to tighten belt as kitty shrinks)
Drew Faust and executive vice president, Edward C. Forst wrote a letter council of deans at the university outlining the effect of the global financial turbulence on the investments made by the endowment.
''To put a loss of that size in historical context, over the last at least 40 years, Harvard's worst single-year endowment return was a negative 12.2 per cent in 1974, and at that time our endowment stood at less than $1 billion and funded a much less significant proportion of University operations'' she wrote.
Harvard Management Company, which acts as an investment manager for the endowments, expects that as it receives more comprehensive valuations in these asset classes from our external managers, the endowment will realize further declines in value.
Harvard is now planning to reduce its operating budget, reduce the scale of its projects at Allston, reduce hiring, and compensations but at the same time keep investments in academic programs going.
Many covers its operating costs by as much as 35 per cent from the income generated by its endowments and for the first time this year students whose parents earn less than $60,000 a year could attend Harvard free. It also reduced tuition fees to households earning $180,000 a year. They now pay a maximum of 10 per cent of their income on room and board. (See: Harvard University's endowment fund grows to $36.9 billion)
Major rating agencies, Moody's and Standard & Poor's, rate Harvard as Aaa/AAA - the highest credit ratings available.
Other university endowments have also lost and many of them are cutting back on funding of higher education and have undertaken cost cutting measures such as putting a freeze on hiring, enrollment cuts and mulling an increase in tuition fees.
Some institutions are thinking of a steep increase in tuition fees as most of them get only 30 to 40 per cent of its operating budgets from its endowment.
The Harvard endowment is managed by Harvard Management Company (HMC), established in 1974 to oversee the University's endowment, its pension and trust funds, and other investments and it is not a single fund, but more than 8,600 individual funds, many of them restricted to specific uses - such as support of a research center or the creation of a professorship in a specific subject.
Each school within the University uses a combination of income from investments, gifts from fundraising efforts, and tuition to cover the cost of educating students.
Tuition from Harvard College, for instance, covers only about two-thirds of the total cost of a Harvard education. Harvard's reliance on support from its endowment has increased in recent years.