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Treasurer Releases ’02 Report

By Nathan Collins

EXECUTIVE EDITOR

In the last year, the MIT endowment decreased by 9.8 percent to about $7 billion, according to MIT Treasurer Allan S. Bufferd’s annual report.

The change was principally the result of investment losses totalling about $800 million, the report said.

Bufferd reported MIT’s total assets as $8.4 billion, down from the 2000 peak of $8.9 billion. Other universities have seen similar declines in recent years. Harvard University’s endowment, for example, declined over Harvard’s last fiscal year by about $800 million to $18.2 billion, the Harvard University Gazette reported.

MIT focuses on long term strategy

Bufferd said that MIT’s long-term investment situation was more important than this year’s loss. Between June 1997 and the end of the fiscal year in June 2002, MIT’s total invested assets grew by $2.8 billion, and this was “the key number,” he said.

“I’m not happy about last year, [but] that’s not the point” he said. “The Institute does not run its activities on a one-year basis.”

In the last fiscal year, “venture capital startups fared poorly,” Bufferd said, but there are “no sharp turns” in MIT’s investment strategy.

“We don’t wake up one morning and say, ‘no venture capital,’” he said. “No one’s that prescient.”

Bufferd said that the coming years will be difficult, and if MIT broke even next year, he would consider it a good year. “Keep in mind we’re starting the year with the worst quarter in the history of the U.S. market,” he said.

MIT receives highest bond rating

Moody’s Investors Service and Standard and Poor’s both continued to give MIT’s bonds their highest rating of triple-A, the report said.

In the 2002 fiscal year, MIT borrowed $250 million in the form of bonds and bank debts, increasing its total long-term debt exposure by 47 percent to $772 million and paying $27 million in interest.

The bonds issued in the past year have helped to fund various construction projects around campus, Bufferd said.

A report to potential bond buyers listed several uses of the funds. Most of the purposes were related to new campus construction, including Simmons Hall, Sidney-Pacific graduate dormitory, the Warehouse, the Zesiger Center, and the Stata Center. Additionally, the bond report cited renovations to Building 18, which houses the Chemistry Department.

The bond report also cited the addition of a new telephone switch and a new chiller at MIT’s central utility plant.

Equity losses dominate portfolio

Most of MIT’s investment losses came in equity investments, which also form the bulk of MIT’s investments.

MIT reported market-value losses of $867 million in equity investments.

“The two primary contributors to overall investment return were private equities and publicly traded stocks,” said Martin J. Kelly, MIT’s director of marketable securities.

“Clearly a contributor was the portion of the portfolio invested in publicly traded U.S. companies,” he said.

The percentage loss in investment assets was slightly smaller than last year’s decline of 12 percent in the Dow Jones Industrial Average. But without a detailed picture of MIT’s investments, which include domestic and foreign publicly traded securities as well as private equity, these figures are not directly comparable to MIT’s losses.

Kelly said that private equity played a role as well. MIT invests in a variety of private equities, including hedge funds and venture capital.

Additionally, the value of MIT’s real estate investments increased to almost $900 million from about $720 million, and MIT received a total of $236.6 million in gifts and pledges in the last fiscal year, the report said.