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December 23, 2008

Harvard: Losses More Like $18-Billion Than $8-Billion?

An unnerving claim is made on Huffington Post that will strike fear into many endowment managers everywhere: Harvard's endowment is in much worse shape than most people think.

Harvard University's admission that it lost $8 billion from its $36 billion endowment fund, as staggering as it sounds, may grossly underestimate the true magnitude of the loss between from July 1 through Oct. 31 2008. According to a source close the Harvard Management Corporation (HMC), which runs the fund for Harvard, the loss is closer to $18 billion if the losses on the fund's illiquid investment are realistically appraised.

This is, of course, essentially a mark-to-market issue. Does Harvard have to mark its illiquid investments to market, or does it not? If it does not then the losses are just paper, but if it does, then everything changes. Were I on the board of trustees of the Harvard Endowment, what would I do? I'd lean to marking as much of it to market as I could.

More here.

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