Endowment Hits High of $2 Billion

Riding the crest of Wall Street's biggest rally in history, the value of Harvard's endowment has increased more than $3000 million in the last three months to an all-time high more than $2 billion, University financial officers said yesterday.

The bulk of the jump in Harvard's endowment--the largest of any American university--comes from what Harvard's chief vestment official called a 17-to-18 percent increase in the return on Harvard's portfolio of stocks and bonds in the last three months.

The increase has been "very unusual" and the best in at least the last eight years, said Walter M. Cabot '54, president of Harvard Management Company, which manages most of Harvard's portfolio.

"These are the kinds of results you would be happy to get in a 12-month period and maybe more than that, and we've had it in 60 days," he said, referring to a $250 million rise since August.

Since mid-August, the Dow Jones Industrial average--the widely-accepted barometer of the stock market's performance--has skyrocketed 30 percent amid heavy trading and has hovered around the 1000-point mark. The bond market has also risen more than 25 points in the past two months.

Harvard has taken advantage of these record leaps. Cabot and College Treasurer George Putnam '49 agreed yesterday.

Before the market's August take-off, Harvard's portfolio was divided almost equally between stocks and bonds with very little cash--maybe 5 percent," Cabot said.

"We missed the first couple of weeks of the rally," he said adding, however, that since the beginning of September. Harvard has poured about $200 million in assets into the stock markets. Due to the investment shift, the percent ratio between Harvard's stocks and bonds is now about 65 to 15.

"We fully recognized the bull market in bonds," Cabot explained. He added that the rise in stocks, however, "has been faster, higher, and harder than anybody would gentrally have balleved. I don't ever remember's move like this in this sort of time period."

One key factor behind Harvard's ability to reap full benefits from the markets' rally was the Universtity's financial strategy prior in the summer take-off. Virtuality all of Harvard's assets were lovested in either stocks or onds, Cabot said. He noted that many other institutional investers were holding significant proporions of cash, which has during the past several) months suffered a shapt drop in returns rates.

"To the degree we were not in cash, and to the degree we were to bonds, it was very helpful to this portfolio," Cabot explained.

Both Cabot and Putnam cited the Federal Reserve Board's loosening of its tight mone- tary policy last summer and the subsequent drop in interest rates as the prime reason behind the financial market's surge.

Wall St.'s conclusion that the current recession will not worsen was another factor in the market's turn--around, Putnam said. The stock market is saying that economic recovery is looming at an uncertain future point, he added.

The recent jump in Harvard's portfolio value follows a basically stagnant year of investing for almost all universities.

During the fiscal year ending June 30, the total return on stocks and bonds for Harvard was "basically flat," Cabot said, adding however, that this was a "very competitive position versus most other Ivy League endowments."

At Yale and Princeton, for example, the portfolios were more heavily invested in stock, and consequently, their returns were down approximately 5 to 8 percent, Putnam said.

Putnam said that although he is never fully satisfied with the University's investment results. "Harvard has had a strong recovery and we're pleased with it.

Harvard's $2 billion endowment is approached in size only by the oil-rich University of Texas, Yale and Stanford, among others, lag behind in the $800 million to $1 billion range.

Income from Harvard's endowment meets about 20 percent of its approximately $500 million worth of annual expenses.

The recent success in the financial markets will not have an immediate effect on how much Harvard's various faculties can hope to receive as their share of the endowment income. For several years, the Corporation has decided to increase distribution of income at 4 percent each year for each faculty and department.

The Corporation has ploughed the rest of any income earned back into the endowment for further investment.

But Robert H. Scott, vice president for administration, said yesterday that if the current stock and bond boom continues for a long time, the Corporation could conceivably decide to increase the amount of endowment income distributed to the faculties