Harvard struggles to maintain endowment

CAMBRIDGE, Mass., March 1 (UPI) -- Harvard University's time as a high-flying investor in exotic financial instruments now has it struggling to maintain its endowment, U.S. analysts say.

Harvard's $36.9 billion endowment, the world's largest, was managed aggressively during the U.S. real estate boom, producing prodigious returns, enabling a grand expansion that was eventually used to almost double the size of the Ivy League school, Forbes Magazine reported Sunday.

But Harvard possessed derivative securities that exposed it to $7.2 billion in commodities and foreign stocks -- and when prices of both started crashing last year, the university faced demands from counter-parties, such as the Wall Street investment banks JPMorgan Chase and Goldman Sachs, for more collateral.

Harvard, however, did not have cash on hand to meet margin calls, Thanks to the derivatives, the university held a 105 percent long position in the risky assets, which Forbes said was like putting every dollar of a portfolio to work and then borrowing another 5 percent to buy more stocks.

Now the endowment is stretched, Forbes said. If the fiscal year ends with the endowment down to about $24 billion, the university reportedly will be drawing down half again as high a percentage of its assets as it did in 2004, the last time the endowment was roughly that size.