The two richest universities in the US, Harvard and Yale, saw their endowment values fall by by over a quarter, reflecting that even the best managed funds are not immune to recession.

In a year of extraordinary market turbulence, the two prestigious universities in the US, long admired for their shrewd fund management skills, regularly gave earnings of approximately 8.6 per cent even as the 2008-2009 global economic meltdown was shaking the foundations of large corporations.

But, Harvard University, the world's richest university and Yale University, the second-wealthiest university in the US could withstand the global meltdown only to a certain extent; while the Harvard endowment saw its biggest drop in 40 years as it fell 27.3 per cent, Yale's endowment dropped 30 per cent in the last fiscal year ending June.

Relying on hedge funds to bring top returns, for the fiscal year 2007-2008, which ended on 30 June 2008, Harvard's $36.9-billion endowment earned 8.6 per cent on its investments compared to the 13.1 per cent fall in the Standard & Poor's 500 index during the same period. (See: Harvard University's endowment fund grows to $36.9 billion)

Cambridge, Massachusetts-based Harvard, said its endowment dropped 27.3 per cent or $11 billion, to $26 billion during the fiscal year ending 30 June 2009.

Despite punishing market conditions and losses, the university's endowment still managed a five-year annualised return of 6.2 per cent and a 10-year annualised return of 8.9 per cent.

Harvard said that during the past 10 years, Harvard Management Company, which acts as an investment manager for the endowments, has added approximately $18 billion of value over what the University would have earned by employing a simple 60/40 stock and bond portfolio.

''During the 2009 fiscal year, we saw extreme volatility and financial dysfunction impacting markets around the world as well as the Harvard portfolio,'' said Harvard Management Company president and chief executive officer Jane Mendillo.

Mendillo, who graduated from the Yale School of Management in 1984, said, ''HMC actively managed the endowment through truly unprecedented conditions over the past year while maintaining the long-term focus on investment opportunities that has served Harvard so well historically.''

In February, Harvard had frozen salary hikes at the Kennedy School of Government and the Faculty of Arts and Sciences, and said it would cut 25 per cent jobs in Harvard Management Company and find ways to reduce spending across the campus, raising the prospect of cuts in programmes and compensation after feeling the pinch from the global economic slide. (See: Harvard feels the economic pinch; axes jobs)

Similarly, New Haven, Connecticut-based Yale University, said its endowment fell 30 per cent to about $16 billion in the fiscal year that ended 30 June.

Yale said, ''Because we did not make a full adjustment to the initial decline in our endowment and because it has declined further since last December, we are now projecting a general appropriations deficit in the range of $150 million each year from 2010-11 through 2013-14.''

Yale said that only a small fraction of its endowment fund is invested in publicly traded securities, so the recent stock market rebound has not had a substantial effect on that number. The bulk of its endowment remains invested in illiquid assets, which have not begun to recover their value.

Yale's president, Richard Levin, wrote in a budget update, ''But we have set a pace that will trim our originally planned expenditures by more than 25 per cent in the years immediately ahead.''

The 25-per cent reduction in planned expenditure would mainly come from its spending on its 136-acre West Campus development plan.

Last winter, Yale had asked units to reduce both their staff and non-salary expenditures by 7.5 per cent for the 2009-10 academic year, and said that it would cut a further 5 per cent in non-salary expenditures in 2010-11.