By Svea Herbst-Bayliss
BOSTON (Reuters) - Harvard University's endowment has lost 22 percent, or roughly $8 billion, in the last four months, leaving the world's richest university on track to deliver its worst annual returns in 40 years.
Harvard President Drew Faust told administrators about the loss in a letter dated December 2 and posted on the website on Wednesday, and warned that officials expect to see even steeper declines of 30 percent by the end of its fiscal year in June, 2009.
Faust cited "severe turmoil in the world's financial markets," and said every major asset class has been affected.
The news is especially jarring for the Ivy League school, whose worst-ever investment loss was 12.2 percent in 1974.
By relying heavily on alternative investments like hedge funds, real estate and timber, Harvard has delivered an average annualized investment return of 13.8 percent over the last decade. In the last fiscal year, ended June 30, the school's endowment grew 8.6 percent to a new high of $36.9 billion despite double-digit losses in the broader stock market.
Harvard's investment choices are closely watched in the asset management industry, and its money managers have long been considered among the best in the world.
Harvard relies on its endowment to cover about 35 percent of its operating budget, Faust said, warning that the school will need to reduce expenses.
She 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.
She also said the school is "taking a hard look at hiring, staffing levels and compensation to consider how we can reduce overall spending."
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. A year at Harvard costs roughly $45,000.
Faust first warned faculty, staff, students and alumni last month that the university is looking for ways to cut costs as the Ivy League school feels the impact of the financial crisis.
As early as July, Jane Mendillo, the school's chief investment officer who oversees the endowment, warned that future returns might be lower.
(Editing by Richard Chang/Jeffrey Benkoe)
