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Sunday, December 21, 2008

No safe havens

by McCleary

When I tell people I work at the business school of private university (Duke), there is always the assumption that I'm at the one place where business is still good. After all, applications to daytime MBA programs are frequently countercyclical, and indeed, Fuqua, like many b-schools, is experiencing an increase in both quality and quantity of applications.

But as the Raleigh News & Observer reported Friday, Duke University's endowment has dropped 19%. The article also mentions other top-tier universities with similar declines: Yale at a reported 25% and Harvard at 22%. As bad as these numbers look, the real story is probably far worse. Most schools have a decent stake in private equity investments, the losses of which are extremely difficult to estimate. So when the dust clears, look for a significant downward revision of endowment losses. For schools relying on endowment income for operations, this will likely mean hiring freezes, salary freezes, and layoffs.

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