Stanford’s Investment Loss May Be Largest Ever

It’s not a surprise — Stanford University president John Hennessy warned in April that the university’s endowment would probably drop 30% this year due to the world economic crisis — but a 25.9% plunge in Stanford’s primary investment pool for 2008-09 is still daunting, even if the S&P 500 Index did drop a little more. (Stanford is comparing the 12 months ending June 30).

As a result, Stanford has cut the payout on individual endowment funds by 10% for this fiscal year and another 15% for next year, making everybody take a two-year hit. (“Five years of reductions would be harmful to morale, especially after the external economy recovers,” its 2010 budget plan notes. “A series of small cuts does not encourage strategic decisions.”)

The school also raised $1 billion in a bond offering last April in case of a “true emergency,” Hennessy said.

Stanford’s primary investment pool, the Stanford Management Company, appears not to have issued its 2009 report, which would shed more light on why the university lost so much money. But the losses are similar to those of other Ivy League schools — Harvard, Yale — that relied on investments in venture capital and private equity and hedge funds to boost their endowments, as Benchmark’s Bill Gurley has so eloquently pointed out. It was wonderful in the good years, but it hurts like heck in the bad ones.

Also, on June 30 of last year, Stanford had 16% of its investment allocation committed to real estate, according to the most recent Stanford Management Company report. That can’t have been good either.