Elite Endowments Weather Markets

In a year of historic market turmoil, many of the nation’s wealthiest universities beat the trend of negative returns—with Harvard leading the pack.

Though Harvard’s 8.6 percent return on its investments through June 30 was down significantly from previous years, it led a slew of universities with large endowments that managed to stay ahead of downward spiraling market prices.

Yale announced late last week that its endowment rose 4.5 percent during the 2008 fiscal year—ending the year with $22.9 billion—and Stanford announced a 6.2 percent growth in its investments, leaving its total endowment relatively unchanged at $17.2 billion, after expenditures.

Officials at Harvard’s neighbor, MIT, said yesterday that it had managed a 3.2 percent return over the past year. Its endowment now totals $10.1 billion.

The largest higher educational endowment to announce a loss so far, the University of Pennsylvania, dropped 3.9 percent on the year. But the Philadelphia school still bested the negative 4.4 percent median return of 165 peer institutions, as measured by the Trust Universe Comparison Service.

While these returns pale in comparison to the consistent double-digit returns posted by the wealthiest university endowments over the past few years, they remain robust in light of the worst financial downturn in decades—one that has prompted a U.S. government plan to purchase up to $700 billion of toxic securities in an effort to cleanse the balance sheets of the country’s ailing financial institutions.

The unprecedented government intervention in the market follows a series of financial shocks in recent weeks, including the failure of Lehman Brothers, the government takeover of mortgage giants Fannie Mae and Freddie Mac, and the largest government bailout to date—an $85 billion loan to the American Insurance Group, Inc., an insurance company whose near-collapse some feared would send the financial system into a tailspin.

The headline-grabbing failures follow a year-long financial decline, caused by unexpectedly high rates of home loan defaults that tore through the economy and wiped out billions in capital.

The downturn accelerated in recent months as lenders, spooked by steep losses and high-profile bank failures, tightened their purse strings.

As Harvard’s endowment has ballooned over the past decade, spending has increased in kind, with $1.6 billion in expenditures coming from the endowment last fiscal year.

As late as 2005, the payout from the endowment was still under $1 billion. With the University becoming increasingly reliant on the endowment for its operating expenses, Harvard will have to hope its investments can continue to flourish in a precarious market environment.

—Staff writer Wyatt P. Gleichauf can be reached at wgleich@fas.harvard.edu.

—Staff writer Nathan C. Strauss can be reached at strauss@fas.harvard.edu.