Yale endowment loses 25% in six months

The $17bn endowment has suffered from declining financial markets. The university says it has been establishing reserves in anticipation of 'substantial' write-downs in its private equity and real estate portfolio. Real assets, including real estate, makes up a quarter of the fund's portfolio.

Yale University’s endowment has declined by 25 percent since the end of June and now stands at a total value of $17 billion, joining other US university endowments that have taken big hits in the global economic downturn.

The endowment was valued at $22.9 billion as of 30 June.

From July through October, the endowment's investments had a negative 13.4 percent return, Yale president Richard Levin said in a letter to alumni.

“But this does not tell the whole story. Our endowment is invested in both marketable securities (chiefly stocks and bonds) and 'illiquid' assets, such as real estate and private equity investments that are not traded on a daily basis and are difficult to value with precision,” he said. “The value of our marketable securities has declined further since 31 October, and, even earlier, we began to establish reserves in anticipation of substantial write-downs in the value of our private equity and real estate investments.”   

We began to establish reserves in anticipation of substantial write-downs in the value of our private equity and real estate investments.

Richard Levin

Yale has committed 18.7 percent of its investment portfolio to private equity, with a target of 19 percent, according to the university’s most recent annual report, published last June. The university allocates 27 percent of the portfolio to real assets, which include real estate, oil and gas and timberlands.
Levin said that he expected the endowment to remain flat through the 2009-2010 academic year and resume growth after 30 June, 2010.

“It is important to recognise that $17 billion is still a very large endowment. This was where the endowment stood as recently as January 2006,” Levin said. “Markets have been extremely volatile, and the endowment could do better or worse than we are forecasting.” 

Fellow US endowment, Harvard University, earlier this month reported that its fund had lost $8 billion, or 22 percent, since 30 June, when it reported a value of $36.9 billion. Harvard expects losses to increase once it has fully updated valuations for private equity and real estate.

Harvard has a private equity allocation of 13 percent for the 2009 fiscal year, up from 11 percent in the prior fiscal year. The endowment has about $4.5 billion in private equity commitments.

Harvard has been trying to sell about $1.5 billion worth of private equity fund commitments on the secondaries market. A spokesperson for Yale declined to comment about whether the university will go to the secondaries market to unload fund interests.