* Harvard endowment down 27.3 pct, biggest loss in 40 yrs
* Yale endowment off 30 percent
* Losses prompt cost cuts, revision of investment strategy
BOSTON, Sept 10 Harvard and Yale, America's two
richest universities, said on Thursday their endowments lost
roughly 30 percent of their value last year, showing how
severely the financial crisis battered even the world's best
Both schools, long admired for delivering top-notch returns
for years, warned about the declines late last year when their
presidents told students, faculty and alumni about upcoming
Harvard, located in Cambridge, Massachusetts, said its
endowment dropped 27.3 percent, or $11 billion, to $26 billion
in the year that ended on June 30. Despite the loss, the
endowment has still returned an average of 8.9 percent every
year for the last decade while the average comparable fund has
risen 3.2 percent, according to research and consulting firm
Harvard's investment decline, the biggest in four decades,
forced the 373-year-old school to lay off staff and interrupt a
prominent campus expansion across the Charles River.
Yale, located in New Haven, Connecticut, said its endowment
shrank a larger-than-expected 30 percent to $16 billion in the
fiscal year that ended on June 30.
The drop means that Yale will have an annual deficit of
$150 million from 2010-2011 to 2013-2014, Yale President
Richard Levin wrote. He also said the school will cut another 5
percent from non-salary expenses this year after having already
reduced staff and non-salary expenses 7.5 percent this year.
In recent years both Harvard and Yale invested heavily in
hedge funds, private equity funds and timber, relying on these
alternative asset classes to add billions to their endowments.
Last year, however, many of those bets did not pay off and
both Ivy League schools lost far more than the median college
endowment which concentrated mainly on stocks and bonds and
dropped 18 percent, according to Wilshire Associates.
Jane Mendillo, head of Harvard Management Co, which
oversees the school's endowment, blamed Harvard's heavy
commitments to illiquid asset classes for the losses.
Harvard did not have enough cash on hand in the last year,
Mendillo said in a report where she outlined changes to the way
the university will invest from now on.
"We expect to see a prolonged period of instability and
slower growth in some markets," she wrote in the report.
To raise cash, Mendillo sold stock, pulled money back from
certain hedge funds and exited some private equity funds. She
also laid off a quarter of the workforce, or 50 people, at
Harvard Management to cut costs.
Additionally, Harvard is reducing its exposure to real
assets like real estate, timber and commodities and is
investing is shrinking its future commitments to private equity
funds and other investment funds.
Harvard will also have a bigger cash buffer, keeping
roughly 2 percent of the portfolio, instead of having it fully
(Reporting by Svea Herbst-Bayliss; Editing by Richard