Japan's 'Ivy League' schools hit by financial rout

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Japan's top universities are falling victim to the global financial crisis that has caused $964.6bn in writedowns and losses at financial institutions.

Keio University, the alma mater of numerous Japanese politicians including former Prime Minister Junichiro Koizumi, said it has 22.5 billion yen ($233m) in unrealized losses on investments ranging from hedge funds to real estate investment trusts.

Waseda University, a training ground for Japanese politicians since 1882, said it expects a 500 million yen loss on investments as of March to deepen significantly.

"The universities' revenues are declining, so naturally they are turning to investing money to boost revenue,'' said Daisuke Okuyama, a bond strategist at Mitsubishi UFJ Securities Co., a unit of Japan's largest bank by assets, in Tokyo.

"Unless a sound asset management system is constructed, it is possible to see more of these cases.''

Eighty-two percent of Japan's private universities are investing in securities as the nation's birthrate falls, dimming prospects for future enrollment, and its economy slips back into recession, according to a Mitsubishi UFJ survey.

Komazawa University in Tokyo last week said it received 11 billion in loans from Mizuho Bank Ltd. to help cover 15.4 billion yen in losses on swaps managed by French and German investment banks.

Harvard University's $36.9bn endowment may face "unprecedented'' losses as the "the global economic crisis'' spreads, the university's president, Drew Faust, wrote in a letter last week to faculty, students and staff. Harvard is part of the Ivy League group of eight elite private schools in the northeastern US.

Keio, which manages its own portfolio, said it has a total of 100 billion yen in financial assets, some of which are hedged with currency swaps. The school has no immediate plans to reduce its holdings, according to Kazuo Kitamura, the university's investment manager.

Yen currency swap spreads narrowed to minus 87 basis points on Oct 1, the lowest on record, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.

In currency swaps, a person borrows in one currency and simultaneously lends in a different currency. The trade involves the exchange of two different floating-rate payments, each based on a different currency and index.

A negative level indicates investors are willing to earn reduced interest payments on the yen they lend to obtain financing in currencies such as dollars.

"On behalf of the university, I would like to apologize to the students, parents and alumni for causing concern,'' said Seijiro Kobayashi, the director of the General affairs Department at Komazawa University.

This article is courtesy of Bloomberg.

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