Poor Harvard. It can’t seem to catch a break.
After seeing its endowment plummet 27.3 percent last fiscal year (compared with 22.7 percent at Princeton), Harvard revealed over the weekend that it lost a lot more money than just the decline in endowment (which amounts to an $11 billion loss).
The Cambridge school lost an additional $1.8 billion by investing with the endowment the money they use to pay the bills.
Harvard then lost $500 million more to get out of interest-rate swaps, which the university planned to use to secure better rates to finance their Allston expansion. Instead of seeing higher interest rates, as Harvard had originally bet on, the economic recession pushed central banks to slash lending rates further.
This comes on the heels of Harvard’s decision last winter to issue $2.5 billion in bonds to pay its debts. A month later, Princeton followed suit and raised $1 billion by issuing bonds–but at a cheaper rate–to use as working capital so it could avoid drawing down its endowment further. The difference in interest rates between Princeton and Harvard for their bonds amounts to $6.75 million in savings per year for Princeton.
Now it all makes sense why Harvard has had to lay off 275 staff members, stop serving hot breakfast in the dining halls, close one of its libraries, and halt construction on its Allston expansion (there is literally a giant hole in the ground where the new science building is supposed to be).
At least Harvard’s faculty members will still have cookies at their meetings. Oh wait, nevermind.
(image source: flickr.com)