Yale’s Endowment Faces 30 Percent Loss

Yale’s endowment fell $1 billion more than expected to $16 billion in the fiscal year ending June 30, marking a 30 percent decline in value, Yale University President Richard C. Levin announced yesterday.

In an e-mail to faculty, staff, and alumni, Levin wrote that previous projections of a 25 percent endowment drop had not accounted for the continued slide in private equity and real estate holdings even after stock markets began to rebound this spring.

The unexpected additional fall in the endowment will lead to a 6.7 percent decrease in endowment payout this year and another 13 percent in fiscal year 2011. The payout will then remain at this level for the next few years, according to Levin’s statement.

To close a projected $150 million annual budget deficit from fiscal year 2011 to fiscal year 2014, Yale unveiled a series of budget-slashing measures similar to those that Harvard has announced over the past year, running the gamut from construction slowdowns to reductions in faculty hiring to trimming travel, entertainment, and office expenses.“With the exception of financial aid, no area of expenditure will be immune from close scrutiny,” Levin wrote.

Until markets improve or donations are secured, Yale will not embark upon any new construction projects, he wrote. Renovations of two residential colleges and the Yale University Art Gallery will continue as planned, though, as will the design and site clearance for two new residential colleges.

Levin also wrote that faculty recruitment in Yale’s Faculty of Arts and Sciences would proceed at a much-reduced pace, but he did not specify the number of new professors to be hired in this year except to say that it would be “imprudent” to decrease the overall size of the faculty.

Yale will continue to conduct searches for researchers specializing in neuroscience, cancer, and cardiovascular disease since “outstanding laboratory facilities are in place,” but at the same time, the university will cut spending related to these labs by over 25 percent, the letter said.

During the past year, two prominent medical researchers departed Harvard for

Yale, recruited as part of Yale’s aggressive expansion into cutting-edge fields. Former Harvard Medical School Professor David A. Hafler was appointed chair of Yale’s neurology department, and Thomas J. Lynch, Jr.—former chief of hematology and oncology at the Mass. General Cancer Center—has become director of the Yale Cancer Center.

While departments will be asked to cut non-salary spending by 5 percent—on top of a 7.5 percent reduction announced in February—salary-related budget allocations will not be subject to further cuts. In April, Yale administrators said that no more than 100 of the total 9,000 non-faculty employees would be laid off. Harvard has laid off 275 employees, out of a staff of 13,000.

The so-called Yale model of endowment management—characterized by significant exposure to nontraditional, illiquid asset classes including private equity—has come under attack in recent years as many university endowments, including Harvard’s, have suffered heavy losses with that strategy in the economic downturn. Yale’s endowment return has averaged 15.9 percent over the last 20 years, excluding fiscal year 2008, according to the 2008 endowment report.

Yale is expected to release a full endowment report in the next few weeks, which will contain further details on the performance of the endowment and its impact on budget planning. A Yale spokeperson declined to comment for this article.

—Staff writer Athena Y. Jiang can be reached at ajiang@fas.harvard.edu.