Beyond the hallowed halls of Harvard University’s Cambridge, Massachusetts, campus, across the Charles River in Allston and just behind Harvard Business School, lies a largely abandoned 8.5-acre construction site. What was once to be a $1.2 billion, 537,000-square-foot science complex — the first step in a grandiose 50-year plan to expand the famed university’s already sizable footprint — is now an eyesore, a gaping hole that residents claim has sent rats scurrying into their neighborhood. That’s because, after years of double-digit investment returns, Harvard lost a stunning $10 billion during the 12 months ended June 30, 2009, from its once–$36 billion endowment fund.
Harvard is far from alone. In the past year, amid the worst economic downturn in decades, the ten largest U.S. endowment funds lost a combined $36 billion. Yale University’s $16.3 billion endowment, second in size only to Harvard’s, lost $5.6 billion on its investments. The endowments of Stanford and Princeton universities, which now each have about $12 billion in assets, saw their holdings drop in value by $3.5 billion and $3.7 billion, respectively.
Although virtually every college and university suffered during the devastating bear market — with an average loss of 19 percent in the fiscal year ended June 30, according to the Wilshire Trust Universe Comparison Service — the biggest were generally hit the hardest, thanks in large part to their unmitigated devotion to alternative investments, ....