Harvard's Investment Errors

That's where America's greatest university is investing its endowment?

By Daniel Gross

The recent market turmoil portends hard times for even the wealthiest universities. Last week, Harvard President Drew Gilpin Faust told stakeholders that, with the research service Moody's projecting "a 30 percent decline in the value of college and university endowments in the current fiscal year," Harvard needs "to be prepared to absorb unprecedented endowment losses and plan for a period of greater financial constraint."
f any investor could have avoided the credit catastrophe, it should have been Harvard. Harvard, the ultimate long-term investor (it's been compounding assets for more than 350 years), sports the nation's leading business school and counts a host of financial geniuses among its many distinguished alumni. But judging by one snapshot of a portion of Harvard's gigantic endowment, Harvard's recent financial performance is less than impressive.

The Harvard Management Company has the enviable but challenging task of managing Harvard's mammoth endowment. As of June 30, 2008, HMC managed more than $45 billion, the vast majority of it endowment assets. (Here's HMC's annual report and data on its impressive recent performance.) HMC parcels out big chunks of the endowment to outside managers—hedge funds, private-equity firms, asset managers of all stripes—and its staff manages a large chunk itself.

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