Harvard University and five of its New England peers succumbed to Wall Street’s influence on investment strategies, took on too much risk and made the financial crisis worse, according to a report.
Investment losses at the endowments led to cutbacks and delayed construction projects, draining at least $1.35 billion from local economies for the next three years, said the study by Tellus Institute and the Center for Social Philanthropy. The report also surveyed Dartmouth College, Massachusetts Institute of Technology, Boston College, Boston University and Brandeis University, and was partly funded by the Service Employees International Union, which represents employees at Harvard and other schools.
“Harvard highlights how terribly wrong the endowment model can go when pushed to certain extremes in a climate of leadership crisis,” said the 81-page report, released Thursday. The endowment model, pioneered by Yale University’s investment chief, David Swensen, relies on alternative assets including commodities, real estate and private equity holdings to boost returns.
Harvard’s endowment dropped a record 30% to $26 billion in the year ended June 2009. As the fund plunged in 2008, the value of the university’s interest-rate swaps tumbled, forcing it to raise collateral by selling $2.5 billion in bonds in December 2008.
“The endowment model of investing is broken,” the report said. “Whatever long-term gains it may have produced for colleges and universities in the past must now be weighed more fully against its costs — to campuses, to communities and to the wider financial system that has come under such severe stress.”
John Longbrake, a Harvard spokesman, declined to comment. He referred to comments in a September 2009 letter from Jane Mendillo, CEO of Harvard Management, which oversees the endowment.
“This strong long-term endowment performance has been increasingly critical to the university and its operating budget,” Mendillo wrote in the letter.
Tellus is a not-for-profit group that “works to advance a global civilization of sustainability, equity and well-being through research, education, and action,” according to its website.