This story was published on April Fools’ Day.
The Yale Investments Office disclosed Friday that the University’s endowment suffered a nearly $1 billion loss during the recent collapse of several key investments, including Enron.
The loss, incurred during the fourth quarter of 2001, marks the first major defeat for Chief Investment Officer David Swensen, who had guided the Yale endowment to a ten-fold increase during his 15-year tenure. With the hit, the University’s endowment stood at $9.6 billion on Dec. 31, 2001, down from $10.6 billion through June 30, 2001.
Despite the loss, which marks the worst performance ever for Yale’s holdings in a six-month period, the endowment is still the third-largest in the nation behind only Harvard and the University of Texas system.
“Our luck had to run out sometime,” Yale President Richard Levin said. “We had an amazing run, but you’re bound to hit a few bumps. Enron just happened to be a big bump.”
Administrators, including Levin, were quick to point out that Yale’s endowment could still recover during the current fiscal year, which ends June 30, and reach the $10 billion level once again.
The University first began investing in Enron Corp. in the early 1990s. Yale profited heavily as the Texas-based company experienced rapid growth throughout the decade, eventually becoming the largest energy company in the nation. But Yale, like other institutional investors, suffered heavy losses as Enron plummeted into the largest bankruptcy in U.S. history.
“It was a good investment for a long time,” Swensen said. “Anyone would have told you that. We just didn’t get out soon enough.”
There were other securities that added to the University’s losses, but none were disclosed.
Traditionally, Yale only releases information about its endowment once a year in the fall. Levin said he decided to make an exception this year because of the Enron debacle.
“Clearly, with nearly $10 billion still left in the bank, we’re doing just fine,” Levin said. “But I felt an obligation to inform the Yale community about this.”
Levin also said that the huge loss would prompt some kind of administrative action.
“Make no mistake about it, heads will roll,” he said. “Swensen and I will be having a long talk one day soon.
The sudden dip in the endowment’s value could also have implications for the ongoing negotiations between Yale and its unions. The hit to the endowment will adversely affect the University’s operating budget and it will more difficult for Yale to offer a generous salary package to its labor force.
“I’m not sure exactly what we’re going to do,” Vice President for Finance and Administration Robert Culver said.
Union leaders expressed frustration with the unexpected release of the endowment statistics.
“This is another attempt by Yale to manipulate the very people that make it function every day,” Local 35 president Bob Proto said. “If the suits that run Yale weren’t smart enough to get away from Enron fast enough, that’s not our problem.”
Administrators at other top universities said they are hardly surprised with Yale’s financial mismanagement.
“Yale’s inferiority isn’t limited strictly to academia apparently,” Harvard President Larry Summers said. “I guess Rick [Levin] isn’t quite the economist we all thought.”
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