Harvard hits hard times after $1.8bn loss

Jamie Melly & Alastair Cliff 27 October 2009

Harvard University in Cambridge, Massachusetts (MA), one of the richest and most prestigious universities in the world, is in dire financial straits after losing $1.8 billion in investments, and is struggling to deal with its $6 billion of debt.

The university’s endowment, which soared from $4.8 billion in 1990 to $36.9 billion by June 2008, has collapsed by $8 billion this year, representing a 27% loss.

Harvard’s endowment has been the main driving force behind its success in recent years, allowing it to dominate the international league tables; it has been consistently ranked as best university in the world since the inception of both the Times Higher Education rankings and The Academic Rankings of World Universities. Cambridge University was ranked 2nd behind Harvard this year, despite having an endowment only one seventh of that of Harvard.

This is not the first indication that the university has been facing financial difficulty; in autumn 2008 the university tried to sell off $1.5 billion of its private equity portfolio, but no one was willing to pay anywhere near the amount they asked for.

They went on to sell $2.5 billion worth of bonds last December, but this has not alleviated the situation. While raising cash quickly, the university now owes $6 billion costing just over $0.5 billion a year until 2038, assuming no more debt is added on.

The university’s problems are typical of the difficulties faced by Ivy League universities. Yale is also expected to suffer a 25% loss on its $22.5 billion endowment, and Brown to lose 30% of its $2.2 billion. The outgoing Vice-Chancellor of Oxford University also said that Oxford needs a £1 billion injection to bring its “unfit for use” facilities up to scratch.

The recent financial difficulties have forced Harvard to cut back, abolishing its tradition of providing students with a hot breakfast and dismissing 250 members of staff.

Building work has also been slowed on the Allston Initiative, the construction of a new campus in Allston-Brighton, MA, and salaries have been frozen across the university, cutting the operational budget to half of that intended for the next few years.

However, Daniel Shore, the university’s Chief Financial Officer insisted that the university was not under threat. He said “Harvard’s financial position remains fundamentally sound. We still have the largest university endowment, and an excellent team to manage it.”

Jamie Melly & Alastair Cliff