Staying Afloat in the Market's Maelstrom

Every reaction should have an equal and opposite reaction, but the recent 21-per-cent jump in the value of Harvard's endowment will not affect the daily operations of the University--including tuition levels--at all, at least for several years.

Harvard Management Company's decision to increase the percentage of stocks in its portfolio from a little more than 50 per cent to 65 per cent last October helped push the endowment past the $1.6 billion mark.

Appreciation has increased the stock percentage to about 70 per cent, and--unlike many other bond-heavy universities--only 15 per cent of the endowment is now tied up in bonds. Although both markets are reaching new daily lows because of a skyrocketing prime lending rate, the drop in stocks is not nearly so severe, George Putnam, treasurer of the University, said this week.

So while other universities watch the line on their endowment graphs reach new lows because of their bond-heavy portfolios, Harvard investment managers can pat each other on the back for their financial prescience.

All that might sound impressive, but Walter M. Cabot '55, president of Harvard Management Company, said yesterday that because the University feeds only off the interest from the endowment, the 21-per-cent hike since last July "will have no effect at all" on any of the University's budgets.

Thomas O'Brien, vice president for financial affairs, said earlier this week that the declining bond market will only slightly affect the endowment and that "it takes years for the effect to work" on things like the Faculty's budget.

But, ironically, the Faculty's income may suffer while the endowment continues to grow. Putnam said that alumni giving often hinges on fluctuations in the market--if people lose money because of a failing stock market, they tend to give less. And a bottoming bond market can "psychologically" cause potential donors to save up instead of putting out, Putnam added.

Since alumni donations--especially to the five-year $250 million Harvard Campaign that is in its first stages--directly affect the Faculty's budget and tuition levels, stock and bond market downfalls may mean steadily decreasing funds despite a rising endowment.

The endowment's present health also doesn't mean Harvard's money managers can relax--the troubled market could eventually reduce the amount of income the University departments receive.

"If our assets depreciate substantially, the income stream will go down in a few years," Cabot said, adding, "If there is going to be a change in investment policy from here, it would be to commit more of our assets to cash or cash equivalents."

Harvard's hefty stock holdings, especially in oil and defense, give the University plenty of room to breathe. "We're in a good position to take advantage of the market," Putnam said,--unlike many other schools--understating, "We've been fairly fortunate."