BOSTON (Bloomberg) — Harvard University's endowment decreased 22 percent, or $8 billion, in the first four months of fiscal 2009, putting the fund on course to have its worst performance in at least four decades.

The decline came in the four months through October, according to a letter dated yesterday by President Drew Faust and executive vice-president Edward Forst. The endowment, the biggest US education fund, had totalled $36.9 billion on June 30 after gaining 8.6 percent in fiscal 2008. The worst annual return that Harvard, in Cambridge, Massachusetts, has recorded in at least 40 years was a negative 12.2 percent in 1974.

The 22 percent decline, excluding adjustments for real estate and private equity, outperformed the Standard & Poor's 500 Index of stocks, which returned a negative 24 percent during the same period. Faust said the school is making budget plans based on a possible negative return of 30 percent for the year ending June 30. Valuations for the fund's real estate and private equity holdings have yet to be updated.

"The severe turmoil in the world's financial markets has affected all major asset classes in which the endowment is invested," Faust and Forst wrote in the letter. The university also plans to issue "a substantial amount" of taxable fixed-rate debt to help support research and financial aid "as we work to absorb the impact of anticipated losses in revenue", according to the letter.

Colleges and universities across the US are struggling. State university systems in Georgia, California, and New York are firing employees, postponing maintenance and cutting library subscriptions. Among private schools, Princeton University in New Jersey has said it will reduce its 10-year, $3.9 billion construction budget by $300 million.

Harvard's endowment provides funds for more than a third of the university's operating expenses. That portion was $1.6 billion in fiscal 2008, according to Harvard Management Co., the school's investment arm, based in Boston.