Tuesday, December 16, 2008

Harvard, Duke & Yale report on their endowments

First, excerpts from Harvard's, Duke's and Yale’s student newspapers' most recent stories reporting the status of their universities’ endowments and their boards' and presidents’ plans for dealing with drops in endowments caused by the current financial crisis. After that, my comments follow below the star line.

On Dec. 2, The Crimson reported: “Harvard Endowment Fell 22 Percent in Four Months

Harvard’s endowment—the largest in higher education—fell 22 percent in four months from its June 30 value of $36.9 billion, marking the endowment’s largest decline in modern history, University officials announced yesterday.

The precipitous drop will require Harvard’s faculties to take a “hard look at hiring, staffing levels, and compensation,” wrote University President Drew G. Faust and Executive Vice President Edward C. Forst ’82 in a letter informing the deans of Harvard’s losses.

The decline, which amounts to more than $8 billion, is larger than the endowments of all but four other universities—Yale, Princeton, Stanford, and MIT.

In the same period, the S&P 500 fell 24.6 percent. The index has fallen an additional 12.4 percent since then.

The estimate of 22 percent may not fully capture the actual losses from this period, Forst said in an interview yesterday, as some of Harvard’s money is invested with external managers that have yet to report their latest figures. Faust and Forst wrote in yesterday’s letter that the University should plan for a 30 percent drop-off in endowment value for the year ending June 30, 2009.

The news comes during the worst economic turmoil in decades. University endowments across the country have begun announcing unprecedented losses and instituting hiring or construction freezes in an effort to save funds.

The Faculty of Arts and Sciences placed a freeze on staff hiring last week, following a cautionary letter from Faust a month earlier that warned of cutbacks ahead. ….


On Dec. 8 The Chronicle reported: “BOT reviews Duke's fiscal structures”

As other universities announce cuts for budgets impacted by the economic crisis, Duke's Board of Trustees spent the weekend culling information about-rather than passing resolutions on-the underlying structures that have kept its finances relatively secure.

"There is a fact that we are in a very challenging financial time for everyone," Chair Robert Steel, Trinity '73, said in an interview with The Chronicle Saturday.

[Steel continued:] "The good news is that Duke has been very prudently and conservatively managed from a financial perspective for quite awhile. No. 2, we also have very, very good day-to-day controls. And the combination of having been managed prudently and having good controls puts us in a position of having to work through the current challenges as well as one can." …

President Richard Brodhead and Steel said there has been no discussion of tuition changes; last March, the Trustees approved a tuition increase of 5 percent. Actual budgeting across the University will come in January.

The agenda for this meeting was more than a year in the making, meant to deeply analyze financial modes for the University, health system, DUMAC and strategic planning and fundraising.

"As it turned out, that was a really good thing to be doing at this meeting," Brodhead said. "We just want to make sure that we match our resources with our mission and aspiration in the right way going forward."

Brodhead and Steel did not disclose specific numbers, noting that Duke has had to be adaptive but relies less on its nearly $8 billion endowment than some peers.

DUMAC's most recent quarterly report for fiscal year 2008 showed the endowment had increased by 6.2 percent-still a much more conservative gain than typical-but Executive Vice President Tallman Trask told The Chronicle in October that he expected much of that had been lost in the ensuing economic crisis. Other streams of revenue for the University include tuition, gifts and grants.

"In some ways, it's a good thing to be the richest of the poor kids, or the poorest of the rich kids," Michael Schoenfeld, vice president for government affairs and public relations, said in an interview Thursday.


Today, Dec. 16, The Yale Daily News reported: ENDOWMENT FALLS 25 PERCENT

Its story, updated at 7:12 p.m. eastern begins - - -

Yale’s endowment lost roughly a quarter of its value since the start of summer, and several capital projects — possibly including the two new residential colleges — will be delayed as a result, University President Richard Levin announced Tuesday.

Yale will not implement a formal hiring freeze or reduce financial aid even as its endowment has plunged in value to approximately $17 billion today from $22.9 billion on June 30, Levin said. But in a letter to the community and an interview with the News, the president called for budget cuts and postponements of many high-profile construction projects, including the new School of Management campus.

“In recent years, we have been in the fortunate position of being able to pursue many new ideas and exciting initiatives,” Levin said in the letter. “Now we will have to make harder choices.”

From the start of the fiscal year to Oct. 31, Yale’s marketable securities lost 13.4 percent of their value. But Levin noted in the letter that those losses grew in November and December, adding that it is difficult to know exactly how much the University has lost in investments that “are not traded on a daily basis and are difficult to value with precision.”

Given all this, Levin estimated the endowment’s value at $17 billion, representing a 25 percent decline since June 30.

Harvard University announced earlier this month that its marketable securities had fallen in value by around 22 percent; its endowment likely fell far more, however, because that figure did not include updated valuations in Harvard’s real estate and private equity investments.

“We are less hard hit than some other institutions,” Levin told the News Tuesday afternoon. “That’s because of the excellent management of our endowment by David Swensen.”

Even still, Levin wrote that he anticipates flat endowment returns in the 2009-’10 year and positive growth thereafter. He said the losses would create a budget shortfall that will stand at $100 million in 2009-’10 and is projected to rise to over $300 million in 2013-’14.

For that reason, Levin announced five policy changes — effective immediately — in response to Yale’s dramatic losses. [The five policy changes are identified in Levin’s letter linked to above. – JinC]



The three stories' titles above link to their entire stories.

Harvard and Yale alums received specific, current accountings of their universities endowments' values.

Presidents Faust's and Levin's letters to their communities and comments to their respective universities’ student newspapers were impressive for the detail the presidents shared regarding how their universities will respond to the drops in their endowments.

Duke alums were told the “good news is that Duke has been very prudently and conservatively managed from a financial perspective for quite awhile. No. 2, we also have very, very good day-to-day controls.”

But they were given no accounting of Duke endowment’s current worth.

Duke Chronicle’s reference to Vice President Trask’s October statement regarding the worth of Duke’s endowment has been so overtaken by further market declines as to be worse than worthless; it’s downright misleading.

More tomorrow.

Meanwhile, if you’ve not already done so, I invite you to take this Quick Duke Quiz.


Anonymous said...

Why hasn't Brodhead gotten a letter out?

The Chronicle's story isn't news, it's puff stuff.

Duke '85

Anonymous said...

Sandwiched in the same post between Faust and Levin, Steel and Brodhead sound like Stan and Ollie.

Keep up the good work.

Anonymous said...


Duke’s endowment suffers $1B hit

DURHAM – Duke University’s endowment, which funds about 15 percent of the university’s annual operating budget, has lost $1.1 billion since June 30 and now stands at $5 billion.

School officials are tight-lipped about the status of the endowment, but a source familiar with the university’s investment returns says the endowment portfolio is down by about 19 percent from the fiscal year ended June 30, when it stood at $6.1 billion.

Those losses are in line with what other universities have reported to the National Association of College and University Business Officers. Ken Redd, NACUBO’s director of research and policy analysis, says endowments generally have lost 20 percent to 25 percent of their value this year.

Of Duke’s $1.93 billion annual operating budget, about $300 million, or 15 percent, was supplied by endowment returns in 2007-2008. Tuition payments provided 14 percent of the operating budget, according to Duke’s annual report, with the university’s remaining revenue coming from grants and contracts, donations and other enterprises and investments.

Anonymous said...

Very confusing indeed. I see 3 figures mentioned, it was at 6.1 billion but now at 5 billion but Brodhead mentions close to 8 billion in a recent article. What's up with that?

Maybe they set aside 3 billion or so for the lawsuits? Nothing like the real facts and figures or lack thereof to divert attention from a negative situation. Maybe they are counting the 3 billion or so in the Duke endowment (which gives money to several Universities including Duke, Davidson, and Furman) which is separate from the Duke University endowment?

Anonymous said...

Just to add to more confusion that could be cleared up with an actual statement of the facts, there is this quote: "Duke - epic disaster. Supposedly marketing $3B of investments and future capital commitments (note the entire endowment is only $6B). Rumors are so rampant that the president of Duke sent out a letter to alumni a few weeks ago denying there is a problem. Not a good sign."


The Duke endowment had roughly 30% of its total allocated in such things as private equities and hedge funds. The Duke University endowment uses the same investment firm. It would be nice to see some real reporting on this.