The endowments of Harvard and Yale took a horrible beating in the last fiscal year, proof that brains don't necessarily top the market. Documents from Harvard for the year ending June 30 show that its fund declined to $26 billion. That includes a 27.3 percent loss on investments and $1.7 billion in distributions. Things were just as bad at Yale, where the endowment fell 30 percent to $16 billion. Large donors to the universities may be concerned with the huge drops.
The losses could be excused by the overall drop in the stock market, but shouldn't non-profit endowments have their money in the safest fixed income instruments, like Treasuries? The endowment managers would argue that the funds have done well over the last decade because of relatively risky investments, but that reasoning may not matter much now. Both universities will have to cut back essential programs.
The Yale Daily News reports that "The University's budget deficit will grow to $150 million each year from 2010-11 through 2013-14," Both Harvard and Yale have spent years on capital campaigns to increase their endowments, only to see the gains washed away by their investment programs.
In addition to a drop in the net value of the Harvard and Yale endowments, getting donations from rich graduates may well be more difficult. Who wants to give a university $5 million only to see much of the donation disappear?
Douglas A. McIntyre is an editor at 24/7 Wall St.