July 16 (Bloomberg) -- Yale University will delay expansion plans rather than cancel them and stick with the investment strategy that resulted in a 30 percent endowment decline in the last fiscal year, President Richard Levin said.

Levin, the longest serving president in the eight-school Ivy League, said the investment model devised by Chief Investment Officer David Swensen has performed “spectacularly well” for Yale, in New Haven, Connecticut. The strategy, which includes private equity, hedge funds and real estate, returned $11 billion more than a hypothetical portfolio of stocks and bonds over 10 years, Levin said in an interview yesterday in New York.

Yale’s endowment, which it estimated was $16 billion on June 30, is the second-largest in higher education after Harvard University, in Cambridge, Massachusetts. While Harvard President Drew Faust said the recession is driving permanent cost cuts and reorganization, Levin said the economy only delays Yale’s growth.

“We’re here for the long run,” Levin said. “It’s not like the end of the world.”

Levin, 62, has led Yale for 16 years, and is the former chairman of the school’s economics department. He said he expects the endowment won’t grow in the next fiscal year and will return to its normal rate used for planning of 9.25 percent in 2012.

Levin predicted advancements in telecommunications and information technology will increase productivity and propel the economy out of recession.

“There’s a temporary pause in the university’s ambitions,” Levin said.

More Cuts

Yale postponed $2 billion worth of construction, including a new science building designed by Cesar Pelli. It is delaying the construction of new undergraduate residences designed by Robert A.M. Stern, dean of Yale’s architecture school, that would allow the school to expand by 800 undergraduates.

Yale also will cut an additional $100 million to $150 million to close coming budget deficits, Levin said.

The school will continue plans to fill 550,000 square feet of science research space in West Haven and Orange, Connecticut, that it bought in 2007 from Bayer AG, of Leverkusen, Germany. Yale paid $109 million for the 136-acre property, called the West Campus, Levin said.

Faust, a historian who became Harvard’s president in 2007, inherited a building program in Allston, the section of Boston across the river from Cambridge where the school plans to expand on 220 acres over the next 50 years with an emphasis on science. Harvard said earlier this year it would halve about $1 billion of planned annual capital expenditures. The school said in May it would freeze Allston real estate purchases.

Harvard vs. Yale

Harvard estimates its endowment declined about 30 percent, from $36.9 billion as of June 30, 2008. That doesn’t include the payout, or the amount the school spent from the fund.

Yale’s endowment fell 25 percent in 12 months and the school spent 5 percent, Levin said. Including the payout, the fund fell 30 percent.

Yale’s endowment supports 44 percent of the university’s annual operating expenses. The endowment climbed to $22.9 billion in 2008, from $1 billion in 1985, when Swensen began managing the fund. The growth of the fund has allowed the school to expand scholarships and science offerings, Levin said.

“I would not have changed it the slightest bit,” Levin said of the investing strategy. “It’s not a close call.”

In Yale’s first round of cost cuts it fired 59 of 9,000 non-faculty employees. Another 541 employees left the school, either on their own or after taking a buyout, said Helaine Klasky, a spokeswoman.

Cost of Attendance

Tuition, fees and room-and-board rose 3.3 percent for the school year that starts in September. The cost to attend for undergraduates, including books and personal expenses, is $50,550. The school received 26,000 applications and admitted 7.5 percent, for a freshman class of 1,309.

Yale, founded in 1701, had 5,247 undergraduate students in the 2008-2009 academic year, according to the school. It had 6,169 graduate and professional students at 11 schools, including medicine, law, music and public health.

The university has nearly 164,000 living alumni, including former presidents George H.W. Bush, his son George W. Bush, and Bill Clinton.

To contact the reporters on this story: Janet Frankston Lorin in New York jlorin@bloomberg.net; Oliver Staley in New York at ostaley@bloomberg.net

Last Updated: July 16, 2009 00:01 EDT